Piketty showed in Capital that most modern work about the trends in economic inequality was flawed. We usually think of the industrial revolution and modern era as periods where power and wealth became much more fairly distributed. However, if you go far back enough into the records, as he did, you can see a clear trend of concentration of wealth even now in the current system. The trend was briefly disrupted by the two world wars which were so destructive to our economies. The necessary reconstruction led to massive wealth redistribution and evened the playing field somewhat.
It seems that the graphs in this tweet are another confirmation of Piketty's observation.
Didn't Rognlie @ MIT show that almost all of the out-performance of wealth was due to real estate prices? Couldn't the solution to wealth inequality therefore be a radically different approach to building codes and land value taxes? And doesn't it follow that wealthy landlords in California massively benefiting from proposition 13 and decrying wealth inequality at the same time sit at the pinnacle of political and economic hypocrisy?
> In the postwar era, developed economies have experienced two substantial trends in the net capital share of aggregate income: a rise during the last several decades, which is well-known, and a fall of comparable magnitude that continued until the
1970s, which is less well-known. Overall, the net capital share has increased since 1948, but when disaggregated this increase comes entirely from the housing sector: the contribution to net capital income from all other sectors has been zero or slightly negative, as the fall and rise have offset each other. [0]
That doesn't mean that the gains for capital since the 70s are from housing. Only that the gains from the 40s are. It also doesn't address the industrial revolution's affect.
In an interview, Nobel prize-winning economist Joseph Stiglitz (who served under Bill Clinton) criticized Piketty [0] of overemphasizing the increase in concentration of wealth, and this was on the basis that the current increase in wealth stems from an increase in land value.
There are two extreme ways to remove the inheritance problem. One would be to forfeit personal property: you can't give what you don't own. The other would be to remove the concept of family: when born you are placed in a communal system to be raised by professionals. People start with the same chances, the same level of social knowledge, network and vocabulary, you almost get to a pure meritocratic society (there are still those pesky genes).
Let's not imagine the unwanted effects and just bask in the idea of those kind of perfect societies.
Or as Piketty proposed tax wealth as well as income.
Right now some country implement some inheritance tax, but that's the only time when wealth is actually measured and taxed and there are so many loopholes (trust funds, donations, …) to make this incredibly ineffective especially on the richest.
All these proposals about taxing more make me feel uneasy. The real issue i have with tax isn't how much i pay but how it is used. Before i need to pay even more tax i would like to see a concerted effort to automate civil service jobs out of existence (needing to queue at 5am in the morning to get anything done in Berlin is an inexcusable joke in 21st century) and two we need to destroy the unemployment welfare system and implement a basic income. If those two things don't happen as a minimum then i don't think anyone should pay another cent because Europeans are already getting shit value for money as it is.
The real issue i have with tax isn't how much i pay but how it is used.
Pardon my french, but that's such bullshit. Everyone who doesn't like to pay taxes has a noble excuse like yours. Sometimes they oppose to taxes being used to fund the arts, even though it's such a minuscule slice of the total pie as to be barely visible. Other times it's something else that they feel is frivolous or opposed to by some principle or other. The thing is however, that the nature of public spending is such that there is always something which we as private citizens would prefer not to pay for, if given the choice.
People with a libertarian bend tend to think of tax money being spent inefficiently as simply being wasted. But money spent by the government doesn't just disappear after it has been spent. It ends back in the pockets of the citizens! In the worst case scenario, it is thus simply being redistributed. In the best case scenario, it buys society something valuable (universal healthcare, say, or public education) along the way.
> But money spent by the government doesn't just disappear after it has been spent. It ends back in the pockets of the citizens!
Money doesn't disappear, but resources (labor, natural resources) do. Money is just a proxy for resources, so it is valid to say that money can be "wasted", even if it flows into the pockets of workers – for every unit of money spent, there is an opportunity cost.
> In the worst case scenario, it is thus simply being redistributed.
That is not the worst case scenario. The worst case scenario is that resources are used up with little or nothing constructive to show for it. I disagree with many libertarian opinions, but it is not unreasonable to worry about wasteful government spending.
Sorry it's not bullshit. Governments in Europe are especially renowned for the any work is better than none approach and therefore even make up fake jobs to keep their unemployed subjects busy. Protestant work ethic withdrawal is evident and drawn out. Having experienced living in numerous countries i can safely say that taxes are often (not always) poorly spent in Europe. The bureaucracy is over bearing and many jobs exist purely for the sake of existing when they could and are done much better by computers in other countries. Im actually quite left leaning which is why when i care when i see public sector inefficiencies on the scale that they exist in Europe. My ideals start to become threatened when the execution is so purposefully ham fisted. We could be using that money and more importantly time to do amazing things that brings all of humanity forward rather than forcing people to do pointless jobs that they hate in any case.
Governments in Europe are especially renowned for the any work is better than none approach
Are they now? It used to be true in the east bloc countries when they were all communist, but it's not remotely true in today's Germany where OP lives.
Having experienced living in numerous countries i can safely say that taxes are often (not always) poorly spent in Europe
People say that, and I hear: Taxes are not spent the way I would spend them, if I were in power.
when i see public sector inefficiencies on the scale that they exist in Europe
Please be specific about which inefficiencies your are referring to.
European countries are doing very well on the list of riches countries in the world as measured in GDP per capita. That would be quite surprising if their large public sector really were so horribly inefficient.
> European countries are doing very well on the list of riches countries in the world as measured in GDP per capita. That would be quite surprising if their large public sector really were so horribly inefficient.
What do GDP and government efficiency have to do with each other?
In the bureaucratic civil service area Singapore is run like a slick SV startup. It's really a pleasure dealing with the government here. *For the benefit of avoiding unnecessary heated discussion I'm aware and don't want to get into how cheap foreign labour is subsidising the public sector.
Regarding social welfare I don't know anywhere that's doing it well enough to be considered a success. We should be able to provide housing and food for 100% of the people 100% of the time. For the edge cases that fall through mental health care should be provided for as long as necessary.
Not to want to seem like a downer on Europe the things I think they do exceptionally well includes investing in education, while they are also OK on the healthcare front (personally I'm a huge fan of the NHS model and would prefer if it was more widely adopted).
Housing is badly managed as is support for cash strapped entrepreneurs. The taxes nearly broke us when we started the last business in Berlin. In Ireland there is (the last time I checked) a possibility of a 2 year tax hiatus for new businesses in certain circumstances. In general these kind of incentives could do wonders for entrepreneurialism and the potential knock-on upward mobility it can bring.
I would usually agree with you but I live in one of the most corrupted countries in Europe where public money is spent with complete disregard and some public services are crumbling as a result.
Over here we pay a lot and don't get nearly enough in return. The effect of this is a growing libertarian political scene.
a "noble excuse" like "I don't want the goverment to spend over a third of what it gets in taxes on a massive ponzi scheme"?
I'm going to assume you are french, and invite you to come to Spain, where we have a flamboyant highspeed railroad service in which there's not a single line that covers costs (not even Madrid-Barcelona). And guess what, we keep throwing money to that thing.
As for "money not disappearing", you are falling for the "parable of the broken window". Wikipedia has a much better explanation for it.
Once you're done with that, I suggest you to look at how 10 years ago Spain redid all it's public walkways (that were mostly ok) to "improve the economy". It was a massive waste of resources.
[I] invite you to come to Spain, where we have a flamboyant highspeed railroad service in which there's not a single line that covers costs (not even Madrid-Barcelona). And guess what, we keep throwing money to that thing.
What if you let go of the notion that public transportation must be profitable? I don't know anything about the railroad service of which you speak, but I find it incredible if the cost of running it is more than the value it creates (although I concede that it's possible in principle). Do you know what else most societies keep throwing taxpayer money at? Roads. Yet you don't find very many people having a hard time accepting that the cost of building roads exceeds the value created by doing so.
As for "money not disappearing", you are falling for the "parable of the broken window".
I don't know what you mean by this.
Wikipedia has a much better explanation for it.
I'm sure they do.
Once you're done with that
I have this principle which is that if you can't or won't make the argument, I'm not going to go elsewhere and read someone else make it for you.
The main problem is that right now we have absolutely no idea of where the wealth is. One of the most important consequences of the universal income tax was the production of a huge amount of data. There is no equivalent for wealth, even things like Forbes lists are mostly guesswork and handwaving.
>More than half of all private wealth has been inherited in most of Europe
The only time that wasn't true in the USA was before income started being taxed.
If you do the math, the only tax which is not destructive to working people is taxing commerce.
That's the way the US federal government was funded when free enterprise was more available to a greaater percentage of citizens. Switching over to income taxes shifted the burden dramatically from the powerful to the relatively powerless. What more effectie way was there at the time to keep down the first freeborn decendandts of slaves after bondage ended?
The most prominent feature of taxing income is its huge damping effect on upward mobility.
That's OK, the ones who instituted income tax to begin with did so because as far as they were concerned enough citizens had moved up already, especially from the very bottom.
That's the most important consequence.
This is by design.
It's probably best to try and look beyond conventional wisdom when invoking caca del toro.
This might be a chicken and egg problem: we need takes to fund the work of automating away these things.
Just saying "public service is not good enough, so i don't want to pay more money to make it better" seems like a dead end.
You still benefit from your parent's network, you learn a lot more at a young age at home, you profit from their money while being raised. That's a huge difference between people from poor areas and those from even middle-class families.
And that's something advantaged people don't like to think about when they use the meritocratic word: most of them benefited from huge advantages by being born in the right family. Or even just by being born in the right country.
Nowadays you benefit from your inheritance when you are established and don't really need it anymore. What really helped you was the 100k-1 million 0% interest loan with no problem if you don't pay it back you got during your 20s from your parents. Or just knowing you could be attending a good college and knowing the most important you have to get out of there is the right network of people.
Why shouldn't we concentrate most of our effort on those whos' parents succeeded? If the parents had the right mindset and the right genes to succeed, they would in all likelihood pass those onto their children. This mirrors the natural world to a great degree, and to me would seem to allow for a lot more beneficial outcomes then some arbitrary guideline of fairness.
What is better, to give $100K in wealth to everyone, from idiots to geniuses, or concentrate our efforts on those that have more chance to succeed?
The problem with this is that as long as there are so many confounding factors, there is no reason to assume that the success of someones parents was "their own" as opposed to a result of one or more of the confounding factors such as a better network, and access to better education.
If you are going to go that route a better measure would be how much upwards mobility someones parents have demonstrated proportional to their starting point.
Of course that still suffers from a number of confounding factors (e.g. we don't know how much is down to luck)
That would be true if we were trying to find the exact reasons for success.
If you are just trying to promote success, then it stands to reason to reward success of the parents, incase some of those confounding factors are hiding actual fitness. After all, if the null hypothesis is true, you aren't losing anything by promoting some people over others, if they are all equality capable, anyway.
Does it? We don't know that without actually testing. It's very much possible that providing less assistance but to more people will have a much wider impact. If the parents truly are responsible for their own success, there is for example good reason to hypothesize that they may be able to compensate for reduced support with their abilities.
The problem is that measurable success is going to change the experiment.
If you consider that there is no constant landscape, it's always changing and always an unknown, the best option is to try a plethora of different ideas, hoping some will succeed.
It's more like fighting a war in an unknown battlefield. If you play it just one way, you are more likely to lose than if you try many different strategies at once.
The ones that succeed will be self-sustaining, for as long as they are successful, anyway, and gain you enough ground to compensate for the strategies that didn't work.
If this wasn't true, nature would only have produced one single organism rather than a billion or more.
If we don't vary the amount of support people get, then we won't be able to take advantage of situations where more support (or less) would result in greater success.
And given that everything is constantly changing, there is no way to find a perfect level of opportunity to give to people.
So, a system that provides a varying level of support spread out against the population will do better nearly all of the time than one that provides an equal amount to everyone.
I wasn't advocating for perfect exactly measured equality, I was arguing for a distribution that wasn't over the top insanely unfair to 99+% of everyone.
I looked up this term in wikipedia, and I don't know what you are trying to label me as. It seems to be just a buzz word.
As quoted from "The Concise Oxford Dictionary of Politics":
Part of the difficulty in establishing sensible and consistent usage is that commitment to the biology of natural selection and to 'survival of the fittest' entailed nothing uniform either for sociological method or for political doctrine. A 'social Darwinist' could just as well be a defender of laissez-faire as a defender of state socialism, just as much an imperialist as a domestic eugenist.
I think you're kidding, but just in case not: Communism never did any little guy any favors. I can't even imagine the amount of suffering that would go on for children "raised by professionals" given the amount of documented abuse that takes places in institutions like boarding schools, foster homes, and so forth. Nobody loves a kid like his/her own parents do. Not to say that many families don't abuse their kids, but the idea that society would care better for a child is a concept that has been thoroughly and completely debunked time and time again.
As far as removal of private property, I don't think I like the living conditions in Venezuela, Cuba, or China very much, thanks. Again, nobody cares about property better than its owner, someone with a vested interest in maintaining it.
How then is it possible that some four in five American millionaires inherited no more than ten thousand dollars, according to The Millionaire Next Door by Thomas Stanley?
A millionaire is hardly wealthy these days. Upper middle class rich, sure. But not "an estate to leave to my heirs" rich.
Someone who got a good middle class start, went into the right career, and had everything work out pretty well (no major financial misfortune or an injury or sick family member) while saving responsibly, can become a millionaire in a few decades today. They can probably afford a nice house, which their kids can carve up to have their own nice middle class start.
This group of people is still insanely privileged but it is nothing on the obnoxious levels of real inherited wealth in the upper crust.
Speaking as one, I can tell you that having a couple million takes the edge off of everything in life. You don't sweat buying a house or pretty much any new car anytime you want it. The monthly bills are in the noise as far as concerns in life. I still go to work every day but I won't be working until age 65, that's for certain; not full time, anyways. My kids will be able to be entrepreneurs if they wish, they have a comfortable fallback that I never had. Less stress in life is a good thing.
What's different today is that inflation and high taxes have wrecked the middle class. The truly rich are the $100M and billionaire types whose wealth has run away from the rest of the people. Almost none of the truly wealthy are that way because they were smart (merit) only a few are. The rest . got rich either because they were lucky or because of some angle they could exploit such as favorable connections or regulatory capture. Above them, Old Money rules the world by at least one order of magnitude.
A median-income household owning a median-priced house and making the standard 15% 401k contribution will clear "millionaire" by retirement age, easily.
15% of those are in poverty. This doesn't let you save up money. One in two americans are low income. [1]. I'd not call these number exact, but close enough. Much of the group you describe only suck at saving because their income sucks. $50-$100 extra a month doesn't make it easy to save up $500 for an emergency. Literally months. Months with nothing happening. Not a flat tire, not a doctor's appointment. Nothing breaking.
This doesn't explain everyone in your category, though, so a portion suck at saving.
As the linked article points out, we have defined terms like “poverty” and “low income” relatively, so telling us the percentage of people they cover doesn’t convey any information.
The 57% figure is much more illustrative, in large part because it conveys an absolute capability which people can lose or acquire.
Most of the value contributing to millionaire net worth is going to be in 401ks and home equity, neither of which you could reasonably access to pay a $500 expense.
It would be pretty weird to have <$500 in checking at the same time as 5-6 figures in retirement + home equity, but possible. It helps that 401k is a payroll deduction and there's really no bargaining with yourself on whether to pay the mortgage this month (whereas it's easy to splurge instead of saving extra cash).
You can access 401k under "financial hardship", after paying taxes and 10% penalty. Of course, it's rarely worth it for $500 - it'd be better to find a credit card with 0% APR or other credit option, if you have access to those. I imagine most people with 401k's do have access to credit. Am I wrong?
You can also loan against 401k (though there are limits, but if you have it for a while loaning $500 would not be a problem, though again fees could make it a bad deal). Advantage is that while you lose the growth for the time of the loan, you are paying interest to yourself, not somebody else.
"I imagine most people with 401k's do have access to credit. Am I wrong?"
Yes. Low-paying jobs at Wal-mart and Lowes and some gas stations offer a 401k. The contributions are tiny because the checks are tiny but the company usually contributes as well. These folks aren't as likely to have access to credit.
I'll put this as well: If you are looking to take $500 from your 401k outside of those groups, I'm gonna guess things have gone horribly wrong. Getting a new credit card might be a bit tough because your credit is probably already showing the hurt.
Plus the fact that to a person with cash difficulties going to their 401k to get money wouldn’t be easy. Even if you can find someone to help you they’re going to mail you a cheque some time in the future. Hence the success of pay day loan operations that are more than happy to help you out with that immediate $500 emergency.
Hmm I didn't know Walmart offered company-matched 401k. In that case, if they have contributed there at least $100 (which I think should be possible with company match if you work fulltime) for a year, there should be enough money to take a loan of $500 AFAIK.
> If you are looking to take $500 from your 401k outside of those groups, I'm gonna guess things have gone horribly wrong
Yes, probably, but the question was is it possible, when the things go horribly wrong. I still think if you have 401k that should be possible.
They actually have the most generous 401k plan of any company I ever worked for- a dollar for dollar match up to 6% of pay, with no cap. It also vests immediately.
> A median-income household owning a median-priced house
A median-income household is unlikely to own a median-price house for a reason very similar to the reason they are unlikely to own a median priced jet, because home ownership isn't uniformly distributed across income levels, as low income households are more likely than high income households to be renters, and high income households more likely to be homeowners (and to own multiple homes.)
If a median-income household owns a home, it is likely to be a singificantly-below-median-value home.
This sounds like a big number, but consider this - if less than 10% of Americans are millionaires then this means that millionaire parents are more than twice as likely to have millionaire children as non-millionaires.
This shouldn't gel well with someone who values meritocracy/social mobility.
I haven't looked at the data, but my guess would be that it's the difference between weighing based on individuals (number of individual millionaires) vs total wealth. The latter is going to be dominated by the richest part of the distribution.
From what I remember Piketty was simply against using the Gini Coefficient as a measure of wealth and income inequality, which happened/happens to be primarily used by such contemporary measurements.
Then you might want to make that comment instead of trying to be glib.
And no, I was not mixing up anything, I was pointing out that you were merely confirming what the comment said. That you disagree with the definitions used does not change that, given that it was clear which definitions were used, as you clearly understood yourself what was meant.
What's interesting about this is that it barely scratches the surface.
Assets and money are just some of the things that people inherit from their parents. Many people inherit their entire careers from their parents through social connections - These people would probably be classified as 'self made' which makes the statistics seem more benign than they actually are.
I bet if you counted out all those people who were raised with a silver spoon, the percentage of real 'self made' people would probably be less than 1%.
Fortunately, we don’t have to rely on guesses, we have measures of economic mobility. In particular, how likely is it that someone born into a particular quintile moves to a higher (or lower) quintile?
> If a parent's income had no effect on a child's opportunity for future upward mobility, approximately 20% of poor children who started in the bottom quintile (in the bottom 20% of the US range of incomes) would remain there as poor adults. At the other end of income spectrum, if children were born into wealthy families in the top 20%, only 20% would stay in that top income category if their mobility opportunities were equal to every other child's in the country.
> But long-term income statistics show this isn't happening. Mobility opportunities are different for poor and wealthy children in the US. Parental incomes and parental choices of home locations while raising children appear to be major factors in that difference. According to a 2012 Pew Economic Mobility Project study[19] 43% of children born into the bottom quintile (bottom 20%) remain in that bottom quintile as adults. Similarly, 40% of children raised in the top quintile (top 20%) will remain there as adults. Looking at larger moves, only 4% of those raised in the bottom quintile moved up to the top quintile as adults. Around twice as many (8%) of children born into the top quintile fell to the bottom.[19] 37% of children born into the top quintile will fall below the middle. These findings have led researchers to conclude that "opportunity structures create and determine future generations' chances for success. Hence, our lot in life is at least partially determined by where we grow up, and this is partially determined by where our parents grew up, and so on."[20]
This would all be true if we were all genetically identical. However psychometrics has proven and now cognitive genomics is confirming that valuable mental characteristics have very large genetic components.
Intelligence is the capacity to achieve your goals. Intelligence is highly heritable. A goal of most people is to become wealthy. So people who acquire wealth tend to be much more intelligent than average, as wealth is graded on a curve. Thus though there is regression to the mean, their children will be more intelligent than average, and so worth more as employees and more likely to succeed even if they were put up for adoption.
This has unfortunate class implications, but putting cotten in our ears is not going to help. We must separate the normative from the descriptive. This is horrible and unfair. But natural selection is heartless algorithm literally running on death and suffering. We should not expect it to distribute capacities in a manner that is aligned with the prescriptions of our flimsy ideologies.
Wealth distribution would not fix this.
But let us seize the high-IQ alleles and distribute them to the proletariat!
Such thoughts are verboten now, even as our tools for such interventions get ever sharper and assortative mating magnifies these differences to a point where it is getting difficult to ignore.
> Intelligence is the capacity to achieve your goals. Intelligence is highly heritable. A goal of most people is to become wealthy. So people who acquire wealth tend to be much more intelligent than average, as wealth is graded on a curve
> improve the life quality of those born with less potential
While a noble goal, I don't believe this is a goal shared by the majority of the population. I think if you ran a poll between "improve the life quality of those born with less potential" and "improve the progress of humanity", the results would favor the later.
Is it better to bring fresh cold water to all, or hot and cold water to some? If it cost $100 to each person for either, I believe that those who possessed $100 would pay for hot water for themselves.
There's an argument for "do both", but that's not always realistic. Those without can force the issue with democracy, but if they force the issue too far, bad things are known to happen from history. I'd be wary of forcing it too far, but your opinion is your own.
> While a noble goal, I don't believe this is a goal shared by the majority of the population.
Then why do most countries have welfare for the poor?
> I think if you ran a poll between "improve the life quality of those born with less potential" and "improve the progress of humanity", the results would favor the later.
What's the point of improving the progress of humanity if not to actually make life better for the majority of humans?
In a few decades the majority of the population might find _themselves_ poor due to not being born with enough potential to compete with automation and robots. Should we keep engineering the economy such as to only improve life quality for the most fortunate?
> Then why do most countries have welfare for the poor?
Because of democracy.
The rest of your points are good and I agree with them. Just pointing out that "improve the life quality of those born with less potential" is probably not a goal most people strive for. I do hope I am wrong, but I don't believe I am.
This idea was explored over a century ago in H. G. Wells' classic "The Time Machine" (https://en.wikipedia.org/wiki/The_Time_Machine), in which over time humanity split into two distinct species by the process you describe.
There's a fairly strong correlation between IQ and income. Yes, IQ is not the exact same thing as intelligence, but it's the best measure we have available.
Also you're conflating "value-creation" with "make money" in your comment which muddles the issue. Making more money is often associated with greater value creation, but it's not strictly necessary.
When I was stationed in Germany in my twenties as an American military wife, the Berlin Wall came down and the Two Germanies reunited. An East German aunt went to visit West German relatives, then visited relatives who had immigrated to the US. She said that "Compared to East Germany, everyone in West Germany looks rich. Then you go to the US and everyone looks like on (the nighttime soap) Dallas."
My maternal grandmother came from a low level German noble family that sold the family title when they fell on hard times. Given my aunt's assessment of wealth distribution in relation to nationality, I guess mom made the right decision coming here.
(Edited to clarify my nationality in response to a question. I did not realize I left that out. Oops.)
I'm sure you were just making polite conversation but it's maybe not so great to follow two pointer hops to someone's personal details. People have many reasons for being sensitive about these things.
I've never thought about it before, but your comment made me realize that maybe the best thing is to feel free to mention what's in someone's HN profile but leave it at that. On the other hand, I broke that myself only this afternoon: https://news.ycombinator.com/item?id=15947396. So I don't know.
I would probably feel a little weird if someone combed through my posts or combined things I've said with search engine research to dox me, but anything posted publicly in a profile seems like fair game. If I put a link to my personal website in my profile and on my website I publish my address I have no problem being contacted that way, but if you find my address through the DNS and send me a letter it might be awkward.
Those that are sensitive about such things shouldn't post such details online, and having that veil of secrecy penetrated and posted publicly might be a wakeup call.
There's no point in protecting someone's imaginary privacy, if their personal details are a google search away, they have no privacy and if that's important to them, they shouldn't post their private details in their profile.
Those are good points too, but it's so much more complex than that. To see how, try the thought experiment of someone digging up absolutely everything that can be found online about you and then posting it as a dossier in some place you care about. If that doesn't make you shudder, you're a rare one.
> Fascinating chart: more than half of all private wealth has been inherited in Germany, UK, Switzerland, France — trend: rising fast!
> Ever less private wealth is accumulated through own work, increasingly more through inheritance.
A massive part of people's motivation to work is to provide for their children. That an increasing portion of wealth is inherited rather than build in an individual's working life-time is indicative that the system is function as intended.
The graph seems to indicate there was a bit of a golden area after WWII up until the early nineteens, and that the nations included on the graph are returning the regular state of affairs.
Modern inheritance should be inherently dissipative, as the estate is repeatedly divided among the heirs, amplified by death/inheritance/estate taxation. The problems arise when the wealth accumulation overpowers the dissipative effect of inheritance, combined with increasingly absurdly high wealth levels that go far beyond providing for children and grandchildren.
As for the "golden area" you mentioned; yes, the war(s) did function as great equalizing wealth redistribution force. Arguably bit of a blunt instrument to accomplish that.
OT but I grew up in a place where first borns would inherit the land that was good for farming and other siblings would get the less desirable land, usually on the coast. Apparently it would make siblings tear each other apart because the difference in land had a huge impact on a family’s wellbeing. Eventually, with tourism, the value of land flipped, making families that owned land by the coast become wealthy. Talk about external factors affecting upward mobility.
Wouldn't the trend towards fewer children and smaller families decrease the dissipative effect? In the extreme case of a "one child" policy, inheritance would be amplified because the wealth of both parents (and presumably four sets of grandparents) would flow to a single individual. Similar to assortive mating, if wealthier families had fewer children relative to poorer families, then this would worsen inequality over time.
Or was it the social-democratic politics that follow war, sickness and starvation?
Or if you're right-leaning maybe you would argue that it was the high growth that was a great equalizer.
Or perhaps a mix of these. I don't see social-liberalism going away in Europe. And while growth might not be same as it used to be, technology is likely to keep disrupting established businesses.
Saving wealth to take care of your children is one thing but this much seems excessive and ultimately means that inequality will continue to increase as wealth is trans-generationally hoarded.
Massive inequality also portends social unrest, plagues due to people who can't afford medical care, wars, etc etc
A massive part of people's motivation to work is to provide for their children. >That an increasing portion of wealth is inherited rather than build in an individual's working life-time is indicative that the system is function as intended.
No, it just signals that the tax system treats unearned income and wealth more favourably than earned income. Political choices.
How you feel about that depends upon how you feel about in increase in unearned income flowing to the wealthy I guess.
> the tax system treats unearned income and wealth more favourably than earned income.
The income was taxed when it was earned. What reason is there to tax it twice?
> how you feel about in increase in unearned income flowing to the wealthy I guess.
Or about how you feel about the government's use of it's citizen's resources. Why should wealth earned by the breadwinner of the family, not remain with the family? It's arguably better than expropriating citizen's wealth to fund expaditionary warfare.
Why do you tax income? That's a disincentive to be productive, that's not good - we want people to be productive.
Taxing wealth is basically paying a rent to the society that allows that wealth to exist. Your land in manhattan is only worth $10m because society hasn't gone all Syrian. Your copyright holding over your film is only worth anything because we don't let people freely copy it.
When the wealth is owned by the people who aren't productive, you have a problem. It may be that those that are productive Leave and move elsewhere - who runs your hospital/golf course/power station then.
It may be that the productive say "enough is enough" and decide to invent the guileteen.
Either way when people have less to lose than you, it's a dangerous place to be.
Interesting idea.. so instead of taxing income, you would tax wealth carried from one year to another...
That would massively discourage saving. I'm not sure that's great in the long run. In the short run I'll probably lead to massive growth as every goes to burn their dollars on something :)
(Arguably it might be a low tax, might even limited to people with a lot of wealth)
Saving money is already discouraged by inflation. A wealth tax would be functionally equivalent to a fixed inflation rate, just the numerical values would be different.
Since the numbers would be going down instead of the increasing money supply devaluing savings, I guess people wouldn't like it, because losing wealth would actually feel like losing wealth.
Such a tax would have a lower bound on wealth (that is how it works in all countries with wealth tax). Only wealth above a set limit (say 1 million dollars) would be taxed. It would not affect people's incentive to save. In fact, if it makes wealthy people spend more of their money, that could conceivably be a net positive on the economy as well (less stagnant money).
That would just lead to (further) portfolio diversification, where you buy assets abroad purely as a means to store value instead of keeping all your assets under a single country's control.
saving is a way of trusting tomorrow's generation to repay you for work you did today. If tomorrow's generation don't feel part of that society then why do they owe you a living? You're only as valuable as how productive you are today, your savings are worthless.
However under your assertion, you are already massively discouraging productivity, by taxing it so high.
However rather than taxing monetary wealth via inflation (which targets those who can't hide their wealth in other assets), you tax the assets that are impossible to avoid, namely copyright protection (charge an exponential fee to keep the work in copyright) and land (if you own $10m of land, and your neighbour owes $100k, you should be paying 100 times more for the upkeep of that land, and you can't hide that off shore).
This means tax on dividends goes to zero, tax on productivity goes to zero, and it encourages people to invest and work, not sit there collecting money from just being rich.
And that's good - although fairer if it's only based on the value of the unimproved land, rather than the improvement. We don't want to stop people from demolishing a slum and building a nice house because the taxes will increase, we want them to discourage owning the slum, leaving it abandoned, and waiting for the land to appreciate in value.
Double taxation doesn't mean anything in this context.
We tax transactions, not specific euros. Income tax when an employer pays their employee. Inheritance tax once the money goes from the deceased to the heirs.
These are separate things! And no different than, say, VAT on that iPhone. Sure it's between family members , but in the vast majority of cases all parties are independent adults.
The land you inherit is not "justly yours". It was the previous owner's thing. You are getting it but it is not your divine right, except that you won the birth lottery by being born into this family.
Of course a lot of families also have smaller domains, and it makes since to have some lower limit... But let's not forget people affected by inheritance tax are overwhelmingly very rich. Most of the population ends up with nothing.
> The land you inherit is not "justly yours". It was the previous owner's thing. You are getting it but it is not your divine right, except that you won the birth lottery by being born into this family.
Of course those arguments apply to governments as well, since they don't derive their law-making authority by claim to divinity - at least in modern times. Why should a government be specially privileged over a citizens wishes to provide for their family and/or community after death?
> Of course those arguments apply to governments as well, since they don't derive their law-making authority by claim to divinity - at least in modern times.
You could use that statement to argue about anything a government does. Why does the inheritance tax need a special justification?
Why do laws that appropriate private citizens wealth need to be justified?
Well, the alternative is wonderful stuff like civil forfeiture law. Whereby a policeman without evidence or proof of criminal wrongdoing can take that $2000 in your glovebox in the name of a defacto beneficiary (the state), because on a balance of probabilities he thinks he has a better claim than you do.
>Why do laws that appropriate private citizens wealth need to be justified?
What moral authority does a private citizen have to own land in Manhattan created 3 billion years ago and made valuable by the infrastructure he didn't build and community he charges rent to?
I would argue that indigenous inhabits as private citizens have the better claim by virtue of tradition and generational succession, than the 'state' as defacto beneficiary and law-maker everytime. The dispossession of native peoples by colonial governments is just another example.
Government confiscation of private wealth in the name of perceived inequality, should be examined very carefully when modern economies are structurally indebted, and budget for foreign policy objectives over domestic improvement.
The income was taxed when it was earned. What reason is there to tax it twice?
I paid tax on my income, so when I buy milk at the store, the store shouldn't pay tax because the income was already taxed and the employees there shouldn't pay tax when they get paid, because the income was already taxed.
Taxing a transfer payment is an accounting fiction equivalent to simply providing a larger benefit. (Social Security, by the way, is simply deferred earnings. You may be thinking of Medicare or disability?)
But then it does not make sense to consider the size of the deceased's estate when deciding if the inheritance should be taxed. And the US does precisely that.
Yes it was. It was earned by the person who made the money.
Would you rather all the wealthy people in the world just blow all their money on yachts or something?
Because that is the alternative. Why bother saving money if it is all just going to be confiscated when you die. Instead you should just blow it all on ridiculous things that help nobody but yourself in the immediate time frame.
Yes, I'd rather them blow all their money on yachts. Because then their money would be entering the economy where it would be used to pay for goods and services and employees.
You know what happens to the money when the government taxes an estate?
That money gets put back into the economy in the next calendar year. While it might be good for individuals to have savings, it's better for the economy when money gets spent. The reason that Gary Cohn got so many shrugs when he asked CEOs how many of them would expand businesses with the money from the tax cuts is simple: they hire more people when they have more demand. Making rich people richer or giving rich kids more of their parents' wealth does jack shit for the economy.
That's a false dichotomy, since the yacht builders will be taxed and taxes pay for a good education for all (in a far less arbitrary way than wealthy parents' charity).
Each individual pays income tax once, when they obtain the income.
There’s no double taxation any more than it’s double taxation to tax my income then to tax the entrepreneurs who I do business with.
And while I agree that money staying with a family and creating economic inefficiencies and pointless disparities is better than war, that’s an absurd false dichotomy.
I was just discussing this as a result of watching this video: https://www.youtube.com/watch?v=-asltUUvcGU in which they discuss the result of the western capitalist system loosely resembling a meritocracy, except in the case of inherited wealth.
An exceptionally productive individual can generate billions, but then when he dies the money goes to his heirs which may not have done anything to deserve commanding that much wealth other than having been raised by (and having the genetics of) the exceptionally productive individual, which is a far cry from being exceptionally productive themselves.
My thought was to create a cap on inheritance. Enough so that the heirs would be able to live a normal middle class life without working, but not be disgustingly wealthy like the parent. ~$5 million seemed like enough to live off interest for a lifetime. I don't think productivity would be disincentivized too much by this, as the productive individuals still get to use their wealth as long as they're living. It'd probably be pretty difficult to plug all the loopholes but I think it's worth thinking about.
edit: another thing, we could lighten some other taxes (income, property, whatever) for this increased death tax such that the overall government tax income remains roughly the same, to make the proposal more palatable. Overall, everyone keeps more of their wealth, and the playing field is leveled and we're a bit closer to an actual meritocracy.
Exactly, there is nothing wrong with individuals not doing anything useful and just modestly living on inheritance but it's a serious problem (if not the most serious for mankind) when people who just happen to win the birth lottery are able to bend societies to their will via lobbying, propaganda or outright hereditary rule.
Most of this wealth probably has nothing to do with merit. For every Steve Jobs there's a whole bunch of people who did nothing more than sit on property that appreciated in value and yielded rents.
The tax system seems to prefer this to actually earning money for some reason.
True, and almost everyone would be unaffected by the law I proposed. If you have two children, you'd need >$10 million in assets for it to affect you. I guess what I proposed is a fix for just the super-rich's inheritance, but it's low hanging fruit and there's a lot of it.
> The tax system seems to prefer this to actually earning money for some reason.
The tax system favors unearned income over earned income to adjust for risk. If you work a job you're guaranteed to be paid for the hours you worked (assuming an honest employer). Investments have no guarantees and you could lose all the money you put in.
There's an argument to be made that the top tax rate for unearned income is too low in some countries, but it makes sense to me that the tax rate for unearned income should always be less than the tax rate for the same amount in earned income.
There may be reasons unrelated to investment risk.
For example, the risk of losing an earned income stream because my (assumed honest) employer (fires me, goes bankrupt, etc.) seems much higher than the risk of losing an unearned income stream based on my investment in bonds backed by the US government.
When everyone is jumping on the band wagon its probably time to run away and passively investing in guilts is dangerous when bank rates return to normal - there will be a massive loss of capital.
OTOH passive investment will only track the market and return an average of 7-10%. Compared to that small-time landlording (which I define as 1-10 units), a popular side-income stream for many working professionals, returns 10-20% in return for higher risk and volatility (you could get bad tenants or have units go vacant).
Also since passive investment requires "no skill and little luck" it's one of the few entry routes into the capital-owning class available to working-class people and middle-class professionals. Anyone can buy an ETF for a couple hundred dollars. You don't need a hot stock tip or a insider lead on an undervalued property. So I'm not sure why one would want to start treating unearned income exactly the same as earned income at the precise point in history that we've learned about the magic of passive investment.
Its not fraking "income" for gods sake if you don't know the difference between income and capital gain you probably should learn it before commenting on this issue.
"Unearned income includes investment-type income such as taxable interest, ordinary dividends, and capital gain distributions."[1]
"Unearned income includes things like annuity payments, pension income, distributions from retirement accounts, capital gains, interest income, dividends, passive income generated from rental real estate, alimony, stock dividends, and bond interest." [2]
Sorry...is that what you meant? Or were you referring to the definition of earned income?
Trouble is "unearned income" is one of those dog whistle worlds like "rent seekers" - which tends to lead to rants about "the gold standard" and onwards to well we all know where that ends.
If you lose a job, you just lose the income stream and 2 weeks of salary at most (+ whatever time it takes to find a new job). With an investment there's a risk of losing the asset entirely. Rental property gets buried in a landslide, company goes bankrupt, gold gets stolen etc. There's also the risk of not making any return at all: rental property remains vacant, company barely breaks even, gold only tracks inflation etc.
> investment in bonds backed by the US government.
Those bonds have a correspondingly low yield, to reflect their low risk.
Certainly some investment can be classed as "gambling". But not all, maybe not even most. Starting, owning, and/or running a business is working. Only it's working with no guarantee of any reward.
Again, we can argue about how high the tax rate should be on unearned income vs earned income (20% max is too low IMO). But $50k in unearned income is worth less (risk-adjusted) than $50k in earned income and should accordingly be taxed lower. Maybe $50k in unearned income is the same as $20k in earned income and similarly all the way up the earnings ladder (I don't know the exact ratio; I made these numbers up).
We often talk about survivor bias in business success; how successful people owe something to luck as much as skill or hard work (which is true, IMO). Shouldn't the variance of this success be recognized in the tax code as well?
>Starting, owning, and/or running a business is working. Only it's working with no guarantee of any reward.
Well, yes, that's why the rewards of starting a business are often completely tax free up until a pretty high level. I don't really have a problem with that, which should have been pretty obvious from my above post.
However, that is completely irrelevant to what I said above.
Sitting on property and collecting rent is clearly not working.
>Again, we can argue about how high the tax rate should be on unearned income vs earned income
I'm of the opinion that unearned income should be taxed at 100% and distributed equally throughout the population whereas earned income should be taxed at 0%. I have yet to meet a person who can cogently argue why handouts (e.g. land rents) shouldn't be distributed equally.
Note that starting a business that grows is clearly earned at least up until a certain point (usually the point where the founder lets the employees run most things).
>Shouldn't the variance of this success be recognized in the tax code as well?
You really seem very keen on having the tax code encourage gambling over working.
I'm not so sure that using the tax code to deliberately discourage working for a living is necessarily the best way to generate a productive economy.
> Sitting on property and collecting rent is clearly not working.
I guess we'll have to agree to disagree about that.
Even landlords have to work (and I say this as a tenant). There's tenants to screen, repairs to manage, regular safety inspections to perform. Land rents have volatility and risk as well. There's the possibility of vacancy or bad tenants which leaves you with a property that's not returning any value. A landslide could take away your property entirely and insurance won't cover it (don't scoff; I know someone this happened to). Maybe it's not as much work as running a small business, maybe it is, I don't know. But it's a non-zero amount of work.
EDIT: As I pointed out in a comment above, I think the top tax rate for unearned income should be higher, with more brackets overall. There's no reason for it to be flat 20% when the top rate for earned income is 40%. That unfairly penalizes small-time investors (who get taxed at 15% on an income that would be almost 0% if earned) as well as high-earning salaried people who pay 40% compared to the 20% someone making 20x as much in unearned income would pay.
> I have yet to meet a person who can cogently argue why handouts (e.g. land rents) shouldn't be distributed equally.
Taxing rental income at 100% would kill off the rental market completely. A lot of people like the flexibility of renting and don't want to deal with realtors and banks and mortgages every time they change their job. Many people can't afford the down payment to buy a house so they need to rent until they've saved up enough to do so (you might argue that property prices will go down because of no landlords and there won't be a need for mortgages, not sure that'll actually happen but it's another topic). Businesses also rent offices or retail space when they can't or don't need to buy. At the end of the day, landlords provide a service that's useful, by deploying their capital and labor.
> I'm of the opinion that unearned income should be taxed at 100%
Here's the IRS definition of unearned income:
"Unearned income includes investment-type income such as taxable interest, ordinary dividends, and capital gain distributions."[1]
So if you really mean that, you're going to be taxing average-Joe-worker-with-index-funds (that includes me BTW) 100% on his dividends. Maybe we need to start being clear on what the term "unearned income" really means before we argue further :-)
So...CEO making $50 million/year would pay $0 in taxes?
> You really seem very keen on having the tax code encourage gambling over working.
Gambling implies the possibility of loss, the presence of real risk. And even property speculation is still a lot of work; you have to research lots and lots of properties, crunch numbers, line up funding, develop and market the property for rent or resale. Given that it's work with more risk involved than taking a paycheck, why is it a bad thing for the tax code to recognize this?
Yes, but currently it's a % of the estate. I think right now the highest bracket is 40% (correct me if I'm wrong) so an inheritance of $500 million is still $300 million after the estate tax.
Determining someone's future on parental wealth means determining someone's future on a lack of parental wealth - and a vast majority of parents don't have meaningful wealth.
So we're (society is at present) consigning a majority of children to a life of missed opportunity and missed potential. I don't see how that can be a good thing.
My point is that if you were a parent, you'd probably realize that for many parents, a large part of the reason they strive to earn is to be able to leave their children in the best possible position in life. It's not something we should be trying to "correct" by removing that ability from parents, and it's uncomfortable to have the government trying to get in between that relationship, beyond the normal inheritance taxes.
Also, parental wealth doesn't "determine their future" any more than the quality of the parents does. It's certainly a leg up, all else being equal, but it's very possible to live an enjoyable and fulfilling life without much wealth if you're willing to get outside of the focus on consumption, and personally, I'd generally take poor, loving parents over rich, uncaring/selfish/narcissistic parents.
Who you're born to will always be a lottery that leaves winners and losers, even if everyone is equally wealthy. You'll get variable quality genetics, if nothing else, at least until we completely master human genetic engineering.
I'm not a parent (also not the person you're directly responding to), but I think one day I might be. Right now we're encouraging the productive people to pass on their assets, but not the ability to create wealth - which would be better for society, and (totally my own subjective opinion) will lead to a better life for the child as well.
There's still the option of living a comfortable life being totally unproductive - but why let that option waste an unnecessary amount of our society's assets?
This would be an extremely strong move by the government, you're right, but I think most people would be behind it, especially since it would affect less than a percent of the population. We're not headed down that path currently, but I thought it was an idea worth sharing.
>Right now we're encouraging the productive people to pass on their assets, but not the ability to create wealth - which would be better for society, and (totally my own subjective opinion) will lead to a better life for the child as well.
Most productive parents are already highly incentivized to not see their children become totally unproductive wastrels, because the culture that made them productive taught them to value productivity, and good parents typically want to see their children instilled with what they see as good values. I don't think the government needs to do much more there.
> There's still the option of living a comfortable life being totally unproductive - but why let that option waste an unnecessary amount of our society's assets?
There are a couple things to unpack here. First off, wealthy peoples' wealth doesn't just sit in a cave, it's almost always ~100% invested in productive ventures. Even sitting in the bank, the bank is using it to write loans to people and businesses to do things with.
The other thing is that it's part of our very basic social compact that peoples' property is theirs and their family's, not the society's, and only in very limited circumstances can the government/society seize that property for the use of the group.
I rather think that most parents would prefer to spend time with their children over their current desperate need to amass enough wealth to carve out a meagre existence.
Good question, and one that economics has been trying to solve for thousands of years. This is just one idea that I think might make for a more just world under my own (possibly misguided, but let's discuss it) ethics.
This doesn't surprise me at all. Based on my observations, I would say that at least the bottom 80% lives solely on income from labor, and accumulates no wealth. Of the upper 20%, some live below their means, some earn slightly more from their labor than necessary to live, and others make enough to accumulate capital. Once you begin to accumulate capital, you earn money from the capital itself. Some accumulate enough capital to earn enough income to quit earning income from labor entirely. Some use the excess capital income to accumulate even more capital. Capital is then passed down to heirs. So the accumulated capital is about equal to new capital generated.
A theory... It takes time to create wealth, and a lot more time elapsed before the current generations than has elapsed (or will) during the current generations, thus perhaps it’s not surprising that as time goes on, most of the accumulated wealth around us is from previous generations.
Furthermore, when a person dies, their wealth can either be destroyed/lost, inherited by heirs, bequeathed to some institution, or absorbed into the state/public... by measuring only “private wealth” as TFA does, we don’t see those latter two routes for the flow of wealth across generations, thus biasing our view toward the inherited component of wealth.
While you raise a very interesting point, I suspect that overwhelmingly wealth is passed down to children; it's a pretty basic human instinct to look after your clan. Though I would like to see some data to be sure.
The flawed thinking that wealth is a pie of fixed size wherein gain by one is necessarily another’s loss is known as mercantilism and was long ago discredited as bunk economics.
I think the matter is well documented. Wealth is not a zero-sum game. However--you have countries that deliberately hold people down. Everyone wants safety nets and such. That all has a huge effect on individual upward mobility.
Wealth might not be a zeronsum game, but we need to prevent someone to play it as such.
Imagine an economy where wealth is accumulated more and more to a few, then even the total wealth grows, how everyone enjoy them equally? If not equally, the inequality soon will make wealth zero sum anyway.
This statistic is from the DIW, a German think-tank which is known for it's left leaning/biased views. It cost them their membership in the country's "council of economic experts" once.
PS: That doesn't mean that the claim is false. But you could - as is often the case - draw different conclusions from the data. E.g. that the European countries have heavy welfare and tax burdens that reduce social mobility and the chances of earning private wealth through work.
> E.g. that the European countries have heavy welfare and tax burdens that reduce social mobility and the chances of earning private wealth through work.
I agree with the general principle, but the US has lower social mobility IIRC than most of the EU countries. My current model is that whatever flaws our model has are currently dominating Europeans' reduction of social mobility.
Given how much better we integrate immigrants (especially in the parts of the economy that are high growth, like urban coasts), I wonder how much US social mobility is overstated. We didn't have a lot of money when I was growing up and my sister and I are both in a pretty high percentile of income, so we'd certainly show up as a data pt of social mobility. But my parents are upper class in "the old country", they both have master's degrees, and their kids' income relative to their human capital isn't really a central example of social mobility.
The wealthiest people here in the UK tend to come from families who were given estates by the crown in the 14th and 15th centuries. That saying may be true in China, but it isn't universal.
Read the chapter “Economic Outpatient Care” in Thomas Stanley’s The Millionaire Next Door to learn how poorly on average American millionaires pass to their children the skills necessary to build wealth.
I'm not certain about the figures for wealth mobility, but intergenerational income mobility is already worse in the United States than in Europe and has been for some time.
This seems natural to me. Wealth might be either inherited or gathered from people that are not wealthy and that usually requires some excuse (for example giving them temporary access to some limited resource you own like roofs or capital or selling them something you can make cheaply in large quantities at low cost).
It stands to reason that most wealth is inherited as inherited part grows gradually by gathered part (which is limited by human lifespan and pace of development of technology that creates new value).
Some inherited part is list due to gambling (on business mostly) but that just lowers pace of growth.
I suspect a lot of inequality is due to better access to wider markets. How rich could you get if your marketplace was just your village? Now, with the internet and cheap global transport, an entrepreneur has access to the globe, and so can make much more money.
How is "UK, Germany, France and Switzerland" most of Europe? Those aren't even the four richest countries in Europe. The title implies this is the case for all of Europe, but the link only claims this for four countries.
Maybe what follows is naive but wealth is not destroyed when somebody dies, it passes on to heirs. If there isn't an economic boom the share of inherited wealth is going to be larger and larger as time passes. Even succession taxes don't destroy wealth, they distribute it and probably most of it becomes private again (salaries to public servants and private suppliers of public works.)
An extreme example: in Egypt they're making money out of the Pyramids, non inherited businesses (tourism) on the top of inherited public property.
It is quite sad, but predictable, that people are trying to silence your voice with their votes. Piketty’s observations dovetail nearly with this article. And a world where r>g, and inherited wealth dominates is a world of economic inefficiency; where lucky sperm dominate all aspects of life regardless of their talent or their value.
> It is quite sad, but predictable, that people are trying to silence your voice with their votes
Would you please read https://news.ycombinator.com/newsguidelines.html, which ask you not to post like this? The parent comment has actually been decisively upvoted. It takes time for the community verdict to become clear.
Also, the "people are trying to silence your voice" thing is an internet trope that is best left elsewhere. We're hoping for thoughtful, non-repetitive discussion on this site, not boxing matches.
Edit: actually, since it looks like you're using this site for ideological battle and have done it multiple times before, I've banned this account. Please don't create accounts to break the HN rules with.
It seems that the graphs in this tweet are another confirmation of Piketty's observation.