What you do see though, in the same Fortune 400 list is that 6 of the top 10 people on that list didn't build their companies (in the sense that Bill Gates did), they inherited them.

I don't know how much the current crop Kochs or Waltons are responsible for the current success of their ventures, but this is the type of thing I believe Piketty had in mind as much as the "parcels of land" approach. Also rent seeking is a problem distinct from a rentier class.

Can you argue convincingly that these people would have been just as successful without the advantages of their births? I suspect that would be quite difficult.

But 10 out of the top ten did not have billionaires for grandparents. The Kochs and Waltons are second-generation billionaires. They're not the product of hundreds of years of steadily accumulating wealth. So there's a flaw in the thesis that wealth continues to grow. There's a significant amount of churn in the ranks of the superwealthy.

For that matter, does it matter if the names change? Distribution of wealth skewing towards a small number of people is still inequality in the sense that Piketty is talking about, even if the names of the people change every 10 years, let alone every few generations.

In other words I think what Piketty is getting at is if there is a decay term, it has to act fast enough that the wealth is distributed broadly before it is all collected up by some other small group of people, otherwise there is little functional difference to dynastic wealth.

Look at the Bush and Kennedy dynasties in government.

That's a strange image.

http://en.wikipedia.org/wiki/The_Rockettes

Why shouldn't people be advantaged because of their birth? The most important thing to progenitors is usually their progeny. Many would even say securing privileges for their progeny is the reason they built what they did in the first place. If I work hard and build something, you can be assured I would want my son and 3 daughters to be able to share in the benefits, and I would hope that my work makes them more successful in their lives than they otherwise would've been. How is there any problem with that?

The real issue is that we don't want people to be unfairly advantaged and we don't want to have a system that builds exclusive monarchies and dynasties. We don't have such a system. You can still become a self-made man in the United States, and thousands of people do it every year.

I don't see how the system of inheritance we have now is unfair, except insofar as many people are jealous and want to take things neither they nor their parents have earned.

Piketty makes it clear that America is a special case because of all of the 'almost free' capital in terms of land and population growth that had existed over the last couple hundred years. But, he claims that America in the future will more resemble Europe of the last few hundred years.

Also, although Gates claims that half of the richest people in the US have gotten rich from their businesses (I haven't checked if that's true), he almost ignores the fact that most of these richest people have come from upper middle class background, at the least. He also ignores the huge number of richest people who have attained their wealth from financial instruments.

If you want the highlights, this economist article does as decent a job of summarizing 400+ pages as you can hope for in 4 paragraphs.

http://www.economist.com/blogs/economist-explains/2014/05/ec...

As for the content, the main take away, is his r > g argument which is illustrated by the following chart:

http://piketty.pse.ens.fr/files/capital21c/en/pdf/F10.9.pdf

One of his other big ideas Bill hits on is his tax on captial. Bill proposes a tax on consumption instead.

> 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.

Maybe not surprisingly since I work in finance, most of my colleges are on Bill's side and not Piketty's here. To be fair to Piketty, he chose a tax on capital because he's coming from a perspective of how do we prevent the accumulation of wealth over generations, where as Bill is coming at it from how do we raise enough taxes to pay for the the services the government needs to provide.

I would recommend reading this book, its clearly a labor of love for him and he's spent the time to back it up with data, just don't expect to agree with all his conclusions.

As far as I could tell this wasn't done as some kind of meta-commentary on anecdotes - just a massive lack of self-awareness

Bill, you didn't read far enough into the Forbes 400 article, which says:

"We didn’t include dispersed family fortunes. Those appeared on our America’s Richest Families list, which came out in July."

That money from 1780 is far from 'long gone.' In fact, most wealthy people started life rich and got richer, largely because they could afford to place bigger bets in life and take advantage of opportunities for labor-free capital gains that simply aren't available to people born without capital. Contrary to Gates' assertion, a 2012 study found that two thirds of the Forbes 400 were born wealthy (http://www.faireconomy.org/bornonthirdbase2012).

1. One guy is putting his capital into building his business 2. A woman who’s giving most of her wealth to charity 3. A third person is mostly consuming, spending a lot of money on things like a yacht and plane

All three actually spend their wealth. The problem with extreme inequality is that really wealthy people can invest, give and spent AND still sit on massive amount of wealth that get past to the next generation.

A progressive tax on consumption wouldn't be enough to fight this.

One core argument of Piketty is that the actual debate has been highly distorted by the massive wealth redistribution that happen in consequence of the first two world wars, something Gates doesn't acknowledge in his review.

[UPDATE] I overlooked the estate tax Gates proposed in his review.

A progressive tax on consumption wouldn't be enough to fight this.

Gates also specifically talks about an estate tax to prevent the wealth to pass to the next generation (at least, part of it).

    I fully agree that we don’t want to live in an aristocratic society in which 
    already-wealthy families get richer simply by sitting on their laurels and 
    collecting what Piketty calls “rentier income”—that is, the returns people earn 
    when they let others use their money, land, or other property. But I don’t think 
    America is anything close to that.
    Take a look at the Forbes 400 list of the wealthiest Americans. About half
    the people on the list are entrepreneurs whose companies did very well 
    (thanks to hard work as well as a lot of luck). Contrary to Piketty’s 
    rentier hypothesis, 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. In America, that old money is long gone—through 
    instability, inflation, taxes, philanthropy, and spending.

I agree with generally all of Gates' thoughts here, but there are two actors to consider when discussing how to address problems associated with inequality - the government, and those who own capital. There is an implicit assumption by both Gates and Piketty that a government is always powerful enough to control what portion of wealth flows to capital owners, and what portion flows to labor.

The risk with a powerful government that can do this is it can be bought. A perfect example of this is Gates own story with The Common Core. From everything I've read, his own foundation basically bankrolled the lobbying, acceptance, and implementation of this program, much to the dismay of many educators I know. As long as a democracy bequeaths power to its government, there will be moneyed interests lining up to tilt that power in their favor.

The other option is to limit the power the government has to control the flow of wealth. No one wants to buy a democracy that doesn't have any power to protect their interests. What ends up happening is wealthy actors have to figure out other ways to maintain their wealth - consumption in things like yachts and fancy cars goes down and investment goes up. As investment goes up, g goes up because that investment is creating more jobs and more competition for employees, and r goes down because the capital markets become flooded.

I understand the concern over governments that are not acting in the best interest of the people. However, abstaining from the process seems a very shaky way to actually get it to act in an appropriate way.

More to the point, I thought the entire premise was that investment has been going up for the sake of investment lately. Which means the main people benefiting from the investment of the wealthy, are the wealthy that are investing.

This odd conflation of philanthropy with investment just smacks of rationalizing high earnings in an "I deserve it" blanket. Yes, more philanthropy is good. No, more investment isn't the same as more philanthropy.

And, no, we don't need to eliminate consumption any more than we need to eliminate investment. Or, rather, I don't know as that we do. (I'm not that bright, all told.) What I do think we need is to increase the benefit to everyone from investment and consumption (and philanthropy). Not just those that are controlling it.

Up until roughly 1903, the US didn't have any personal income taxes. There was a small business tax, and this was it. Gates' own example of old money no longer existing didn't really point to examples such as the Waltons, but to families who have had wealth for hundreds of years due to large estates. He's correct that this wealth no longer exists. My argument would be that it no longer exists because in the 1800s, neither the wealthy nor the labor class were taxed as individuals, r and g roughly equalized and the wealthy didn't maintain their wealth. This phenomenon of extreme inequality started to occur only in the early 1900s, the same time the US first implemented a personal income tax (thus taxing labor more so than wealth, lowering g and raising r).

Though, your argument falls more heavily on the mistake Gates seems to have also made. The type of wealth that the book refers to as "old wealth" really refers to a rentier based society. This is somewhat important, because much of what would have been the "old money" in the US was effectively disrupted by massive technology changes. It isn't that the old wealth just disappeared, it was not created in such a way that it sustained itself.

This is important, because wealth in the modern US does sustain itself. Quite heavily, even.

I acknowledge this. Keep in mind though that in economics it is extremely difficult to comprehensively analyze all the data relevant to your stated hypothesis. Gates points out several areas where Piketty's data falls short, and the amount of data Piketty collected and analyzed for his book is considered one of the strongest points of his thesis.

>This is important, because wealth in the modern US does sustain itself. Quite heavily, even.

Are you talking about Google, Apple, Walmart, etc, or financiers on Wall Street? Or could you expand in general on this? The companies I listed invest heavily in R&D (creating jobs and a better product for the consumer, and sustaining their wealth in the process). Aside from Warren Buffett, I'm under the impression most wealthy individuals in the financial services industry fail to maintain their wealth for the long term, although I don't have any specific examples on hand to support that point. Aside from this, if modern wealth sustains itself through natural processes, then great! We should be looking for ways to make other people just as wealthy, not figuring out ways to tear down those who have been successful.

I am genuinely interested in any discussions on this. Though, I will probably duck out of it soon, as it is beyond me. Please keep it going.

Regarding the investments, I am really talking about individual investors more than the companies. Find me someone with a couple hundred k in investments, and I posit you have found someone that will remain wealthy for some time. Probably long enough to pass it on to their children. Find me someone with a million in investments, and I am even more sure. More, they are in a position to make it so that most dollars they spend directly relate to some more dollars they will make.

I believe you are correct, historically. However, in recent times the wealthy are more and more made up from people that invested well. Pretty much period.

Consider your average home buyer. (Well, scratch that, consider your average successful home buyer.) The banks and lenders gain more from the purchase than the purchaser does. By a pretty large margin. If we look at the ones that go bust, this is even more true.

I agree that we don't need to tear down successful folk. I'm just not sure I've heard any plans that successfully help the less successful ones.

Mine as well, and neither of us have time to compile the data that Piketty has done. Appreciate your thoughtful criticisms.

Regardless, is very fun to consider ideas on this. Thank you for the thread!

This is the point I am trying to make...if this old money had been reinvesting in technology over the past 150 years, it might have been possible to maintain it. Fortunately in the US, the mechanisms were not in place for the government to help these rentiers maintain their wealth, and they weren't reinvesting in technology, so they are no longer wealthy.

No longer must you invest in a rail company and do all you can to make them do well. You can literally invest in the volatility of said rail company. Further, yes, you can invest in manipulating the government to make sure that company does well.

But, without the government, you could likely also just invest directly in competitors to keep them down such that said company still does well. I know, this would still be preferable to keep disallowed, but the hypothesis was an abstaining government. What level of activity counts as abstaining?

This is a big problem, and one that is exacerbated by a strong legal system (read - powerful government) that enables, supports, and protects the gains made from these investment vehicles while disproportionately minimizing their downside risks.

>But, without the government, you could likely also just invest directly in competitors to keep them down such that said company still does well.

This is entirely possible, but remember that as an investor, your dollars are competing against other investors' dollars. More often than not, you are also investing as a shareholder with many other shareholders who have interests in seeing that company succeed. While I think what you are saying is theoretically possible, I'm not sure it would be a common occurrence, unless you have evidence to demonstrate otherwise.

I don't know US history well enough to know who else other than Carnegie was in a position to retain wealth generated by technology 150 years ago.

Next time, it could easily be someone who is using their own money to push a policy requiring iPads or Windows tablets into every classroom, or using their own money to fight off an anti-trust lawsuit being brought forward by the government.

A government can be bought?, your implicit assumption is that a government powerful enough will serve the interest of others and this is bad.

The problem for me is that a government powerful enough will serve their OWN interest, the personal interest of the people in power, and this is bad.

Part of my family comes from a former communist country.

In theory, it was "the government of the people", in practice it was the biggest concentration of power ever in so few hands, the politburo. And the people there had nothing to do with those that generated wealth.

In theory those in the politburo were not rich, in practice they could do or get whatever they wanted. Money was not needed for that.

Only one political party, only one company for the entire nation.

This meant you could be the best worker in the world, if someone high enough wants you to sweep streets, you seep streets or starve.

Not only that, if your brother mother or your sister does something the party does no like(like not getting in bed with someone up), you will pay for it too.

People in change of the police(Beria) will rape hundreds of young women and we will only know decades after with zero consequences to those that took part on it.

When taxes become too high, over 50% of what you earn, you become a slave of government. The problem is that for people like Piketty taxes are never high enough.

Mr Thomas Piketty is French. What we see in countries like France is that 60% of the economy is public. They become more and more communist-central planned.

Money is wasted in those societies in terrible malinvestments(like the Great Leap Forward or Qualitative easings), and they never have enough as they are the most incompetent people around until society collapse.

If you can buy the government, then you are lucky, it means the power is not monopolized in only one place.

There have been a great many Democracies that have failed (although percentage-wise, I would guess they are on the whole more successful than other governing structures throughout history).

I agree that today the legal system today doesn't seem to apply fairly. I don't know history well enough to know if this was the case in the past.

The problem is that it's one man's perspective vs. a whole world of reality, and as such the model might not fit and in some areas cause more problems than good. So you end up with a multi-billionare like Gates being able to basically treat the entire US .edu system like his own testing lab.

(no comment on whether Common Core is good or not - most of thing things I hear about it seem positive)

This was the point I was trying to make. I agree I don't think in this case he's trying to serve his own personal benefit. However, given he used his money to to implement a program he wanted, it just demonstrates the opportunity exists to use your wealth to push programs that are to your own benefit.

That's one of the core ideologies UNDERLYING the great shift in wealth from poor to rich: that politics should have no say in wealth allocation.

What that ultimately means is that the rules of wealth allocation are decided by the wealthy without democratic oversight.

Hence here we are.

Please provide evidence or reasoning to back up why you think this causes money to flow from the poor to the rich.

However, if you cut taxes across the board, not just for the wealthy, the concentration of wealth does tend to even out. The statement 'Limit the power the government has to control the flow of wealth' in itself does not mean slashing taxes only for the wealthy. It means the government has limited power to decide who gets what, because what ultimately ends up happening, is the government ends up taking more for itself than providing for anyone else (look at the massive unfunded liabilities in Social Security and Medicare).

I don't see any reason or evidence for this, that is, for the proposition that ceteris paribus and independent of the distribution of tax burden, reducing the level of taxation promotes a more equal distribution of wealth.

Certainly, to the extent that a given distribution of taxation itself promotes inequality, reducing the level of taxation in with that distribution will mitigate that effect, but your proposition is equivalent to the proposition that every distribution of taxation promotes inequality compared to the absence of taxation, which I don't see any reason to believe.

> The statement 'Limit the power the government has to control the flow of wealth' in itself does not mean slashing taxes only for the wealthy. It means the government has limited power to decide who gets what

IOW, the thing called government is less the actual vehicle through which society is governed and more of a distracting figurehead for the masses, and the powerful govern through other means -- and still for their own benefit and others expense (but without even the need to provide a show of public participation and concern for the public interest.)

>Certainly, to the extent that a given distribution of taxation itself promotes inequality, reducing the level of taxation in with that distribution will mitigate that effect, but your proposition is equivalent to the proposition that every distribution of taxation promotes inequality compared to the absence of taxation, which I don't see any reason to believe.

I think you are saying taxes cause inequality, and the way we tax everyone can make inequality better or worse, but my argument is that the complete absence of taxation will always improve inequality. In another thread here I pointed out that inequality only became an issue in the 20th century around the same time the US government began taxing everyone directly through personal income taxes. This does not imply causation, but it is certainly a correlation. Yes, there are correlations as well that certain tax structures do reduce inequality, but a host of other macro-economic problems tend to correlate with timing of those same tax structures too.

Let's not forget the common risk that the government decides to do something else with that money it takes from the rich through taxes besides distribute it to the poor....such as start a war somewhere :-/

No, I'm not saying that. That's your argument.

> and the way we tax everyone can make inequality better or worse

Yes, I am saying that the way tax burdens are distributed can increase or decrease inequality.

> but my argument is that the complete absence of taxation will always improve inequality.

I recognize that that is your claim. What I don't see is a reason to accept that claim, in the form of evidence or even an explanatory theory of why one should expect it to be true.

> In another thread here I pointed out that inequality only became an issue in the 20th century around the same time the US government began taxing everyone directly through personal income taxes.

Yes, I saw that claim, as well. I'm not conviced that inequality only became an issue then, and even if it did there's a lot of competing explanations (e.g., the end of the frontier period (which, while it may not have actually impeded the growth of actual inequality, provided a distraction from it as an issue.)

But even if it was accepted that the adoption of the federal personal income tax was a contributing factor to actual inequality, that doesn't provide support for the claim that the mere existence of taxation causes inequality rather than that the particular distribution of taxes does so. First, because taxes in the US existed before federal personal income taxes were adopted, and, second, because even if they didn't, you couldn't, from one instance of taxation, differentiate between an effect of the particular form of taxation and an effect of taxation as such.

Another pretext/excuse for slashing taxes on the ultrawealthy.

>the concentration of wealth does tend to even out.

Except this was tried and that's not actually what happened.

Only if it is weak and has incentives to do so. Policies like Citizens' United weaken the government and permit capital to further influence politics.

The USA are somewhat of an edge case here due to their youth. Look at older countries, such as France (where Piketty and I are from) and you'll see a marked difference.

    > Maybe these "older countries" should try --for a century
    > or two-- laissez-faire capitalism and a government
    > limited to the protection of individual rights

Hey look, I can toss around unsupported political assertions too!

Maybe some are fond of John Locke's Second Treatise of Government? of rights as an inalienable attribute of the ultimate minority, the individual? and of a government limited in purpose and scope so that it protects us, nothing more?

I like how he starts with the things he broadly agrees with. Even just agreeing that extremely uneven distribution is a problem and why, gives us a starting point. I personally take a slightly Marxist view on this. I don't think that extremely uneven distribution is politically stable, or compatible with democracy.

I am slightly doubtful of taxation as a solution. Taxation is stuck really. The problem is that most tax regimes are designed to maximize tax revenue while minimizing damage to the economy.

Consumption/sales taxes, income taxes and other middle class taxes are convenient in that they are very hard for people to avoid and they don't affect behavior much. marginal income tax of up to 60% is generally assumed to have a negligible effect on how much people work.

A 1% annual tax on wealth equates to a $10m annual cost of living in a country for a billionaire. Would they move (themselves and/or their wealth) to avoid it? Can some of that $10m be used to find ways of avoiding the rest of it?

I think that ultimately, wealth accumulation needs to change in order to change the structure of the economy.

Also, I like that Gates considers cultural norms, not just policy. What Gates & Buffet have committed to is a partial solution. If 20-30% of billionaires do this, it might be enough to change overall distribution somewhat.

In any case, more questions than answers.

I would speculate that one other mechanic has to do with time. For the vast majority of people there is a hard cap on wage income based on the hours they can possibly work in a day. People who have money to invest can put that to work for them offline, so to speak.

And at a certain threshhold a person can put their money to use to pay for specialized labor (tax attorneys, finance managers etc) to receive an even greater return.

But I'd like to have a better understanding of the year over year mechanics. Anyone have a good explanation. I'm willing to put in some effort.

Gates rightly (and self-servingly) also points out that Piketty does not consider philanthropy as a means to correct some of capitalism's imbalances. Here's a few of Gates' conclusions:

> Piketty is right that there are forces that can lead to snowballing wealth (including the fact that the children of wealthy people often get access to networks that can help them land internships, jobs, etc.). However, there are also forces that contribute to the decay of wealth, and Capital doesn’t give enough weight to them.

> I am also disappointed that Piketty focused heavily on data on wealth and income while neglecting consumption altogether. Consumption data represent the goods and services that people buy—including food, clothing, housing, education, and health—and can add a lot of depth to our understanding of how people actually live. Particularly in rich societies, the income lens really doesn’t give you the sense of what needs to be fixed.

> Piketty’s favorite solution is a progressive annual tax on capital, rather than income. He argues that this kind of tax “will make it possible to avoid an endless inegalitarian spiral while preserving competition and incentives for new instances of primitive accumulation.”

> 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. Think about the three wealthy people I described earlier: One investing in companies, one in philanthropy, and one in a lavish lifestyle. There’s nothing wrong with the last guy, but I think he should pay more taxes than the others. As Piketty pointed out when we spoke, it's hard to measure consumption (for example, should political donations count?). But then, almost every tax system—including a wealth tax—has similar challenges.

Like Piketty, I’m also a big believer in the estate tax. Letting inheritors consume or allocate capital disproportionately simply based on the lottery of birth is not a smart or fair way to allocate resources. As Warren Buffett likes to say, that’s like “choosing the 2020 Olympic team by picking the eldest sons of the gold-medal winners in the 2000 Olympics.” I believe we should maintain the estate tax and invest the proceeds in education and research—the best way to strengthen our country for the future.

People worried about inequality aren't (just) worried about the morality of consumption -- a fat cat sitting atop a mountain of cash drinking champagne and eating caviar while the peasants starve. They're worried about maintaining a democratic society, where everyone gets roughly an equal say in how things go. Highly concentrated wealth is a threat to that. Someone with enough money can single handedly change the course of politics (by funding candidates, lobbyists, or directly bribing various parties), public discourse (by controlling media corporations and through them who says what on TV or in print), and even science itself (by funding some researchers and not others).

The sleazy but short-sighted hedge fund manager bringing in a million plus a year but spending it all on yachts and McMansions isn't a threat. Bill Gates and Warren Buffett, the good investors, are the ones walking around with nukes. They could choose to blow us up at any time, and it's only through their continuing mercy that they haven't.

Wealth taxes are about disarming everyone -- good and evil -- for the safety of us all, not about morality.

If you take that wealth and move it to the average person, even if their fundamental intelligence is equivalent, their experience, education, and exposure is going to be a lot lower.

"They're worried about maintaining a democratic society, where everyone gets roughly an equal say in how things go."

It's an unpopular opinion, but I don't think that everyone should have a roughly equal say in how things go. The average person isn't as well equipped to deal with large problems as the elite are. Everyone has different specialties, and different volumes of abilities. You wouldn't let an intern have an equal say as a senior engineer when designing the core infrastructure. You especially wouldn't let the janitor have an equal say - he's got no experience in desiging such things!

I'm always very uneasy about equality talks because all people are not equally suited to make global policy decisions. Nor are they equally incentivized to make the most informed and rational decisions.

I'm not saying that there isn't a problem or that we shouldn't do anything about it, but I am saying that I disagree with an egalitarian approach. We want the majority of decisions to be made by people who understand what they are deciding and have lots of experience, not to be made by individuals who mostly understand the topic from a single reddit thread. We want to make sure that the incentives of the people in power are aligned with the people who are not in power, but leveling the playing field is not an approach I find valuable.

To really get to the truths behind this opinion, it is important to distinguish one's political goals from the politically implemented policies in pursuit of those goals.

I fully agree with you that the average person is not well equipped to decide on policies. However, the vast majority of people in the elite aren't equipped for that either! Look at somebody like Bill Gross, for example, who was removed from PIMCO after continuously making bad investments based on his misunderstanding of basic economic facts. I wouldn't want somebody like that calling the shots in government.

Honestly, I would expect the connection between wealth and quality of policy analysis to be relatively weak. Education is certainly a confounding variable, but not all education is equal. (A good computer scientist doesn't necessarily make a good economist.) In fact, in certain policy areas such as economics, being part of the elite - which usually means being a high-level executive - is probably a negative for the quality of your policy analysis, because executives see the world from a micro-economic perspective rather than from the macro perspective that is needed in politics.

In any case - I agree that a certain level of "elitism" is probably justified when it comes to the question of policy analysis, though you really have to be very careful who you think the "elite" is in that context.

However, if you leave politics up to an elite, then the goals of politics will also shift to match the goals of that elite, which is probably not a good representation of the goals of the overall population. And therein lies the real crux, because when it comes to deciding what the political goals should be, everybody really does have the same qualification. And this is ultimately the reason why democracy is the right way to go.

The tough problem is to establish institutions that translate democratically established goals into good policy.

Listening to the Walton heirs speak is a good way to be cured of any assumption that the economic elite might actually be smart. (And if you don't like listening to them speak, you can just read about the repeated DWI convictions.) That's 4 of the top 10 richest Americans right there.

You're position isn't all that strange, and it does cut right to the heart of the issue. Do we really want to live in a democratic society?

Part of the problem with addressing this question is that we've generally agreed the answer is, 'Yes'. Even if we're not always willing to fully live that way. No one wants to be labelled as undemocratic, non-westerners get their countries bombed when they get that label.

Another problem with this question is that the other systems of governance we've tried have mostly been worse. When you start trying to figure out how some people can have more say than others based on their merit you inevitably end up picking winners based on something other than general merit.

Who gets to be more important than the rest? How do you hold them accountable as a class if they're the only ones that can ever hold the reigns of power?

I appreciate your honesty about this, but your opinion also scares me. Because there is no way to achieve your perfect world without privileging the rights of some over the rights of others.

I also don't like your comparison of decision making in business to that of decision making in government. In business it is easier to determine good outcomes. If more money is made, we made the right decision. Government involves morality, and outcomes cannot be measured with amoral assumptions of correctness. One person's good outcome in government is another person's bad outcome relative to morality.

You're probably right when you say that the elite are better at holding the reigns of power than the rest of us. It's a very monarchist thing to say, but it's probably right in many contexts.

And like monarchies it's something that I believe we should fight to change. John Dewey recognized this, and made it his prime motivator for compulsory education in the United States. To train citizens for a functioning democracy.

Democracy to me isn't some state that we sit in and relish. It's something we focus on improving through constant education of ourselves and by teaching those around us.

Unfortunately this is so often true in a purely financially oriented point of view however it completely neglects moral obligations which SHOULD supersede financial incentives if need be.

So something that comes up in any discussion like this (economics, politics, global climate change) is that there are several layers of questions to the debate. Some of the questions are matters of preference, some are matters of fact or science. For instance, on the topic of inequality & a wealth tax, we could have these questions:

  * Is a democratic society desirable? (a matter of preference)
  * Does inequality (in wealth) distort the democratic process? (a matter of fact)
  * Does a wealth tax correct the inequality in a way which solves the problem? (a
    matter of fact)
  * Is the wealth tax the best way to solve the problem? (a matter of preference)

Now, to tie this around to your comment, I would clarify that what I mean by "a democratic society" is one where every person has an equal say in matters of preference. In a rational society, these are the only disagreements. I am happy to debate whether, if climate change is happening, we should do something about it. I have neither the desire nor the time to argue whether it is happening or whether it is man-made; these are matters of science and my preference matters not one bit.

The problem we have now is that both matters of fact and matters of preference are up for debate, and the extremely wealthy have a disproportionate say in both.

The usual trouble with this sort of idea is who gets to decide the "elite" that makes the decisions. How do you prevent this group from becoming an insular clique and debar other people from similar opportunities etc.

Power, imho, has a tendency to be self-propogating; people who achieve it hold on to it far after it is useful and tend to bestow it on their proteges, irrespective of their suitability to the task etc. (Anyway it is an opinion; you may disagree)

There are a lot of broken incentives. If one of the elite comes to the realization that they are no longer the most useful person for the job, can we trust that they'll step down? Or will they hide this fact from everyone else and continue to enjoy their position of power?

These types of problems are not solved and it's important to keep looking for better solutions. I just don't think that "all people have equal say" is a better solution.

The problem is a basic political systems one: at some point, you need the consent of the governed. There are no stable systems on the record where a majority of those governed dislike the leadership. Either the oppressed are a minority (colonial Europe, slavery in the US) or the gov'ts are short-lived and unstable (on an order of 50-100 years, in the short term these can work). The most stable regimes that don't have majority support are ones that suppress free speech, which is hard to argue is operating "in everybody's best interest".

So, if you want a stable oligarchy that preserves some free speech, you need a group of "elites" that the whole society agrees is fit to lead them. I don't think the average voter believes themselves to be in the best position to run the country -- that's exactly why they vote for somebody else to do it.

But if you take voting out of the equation, you're trying to build a system where you have an elite that has support of the majority, without consulting the majority. At best, you have a system of guesswork that results in something similar to democracy (because the oligarchy are people the majority supports anyway). At worst, you have an unstable government.

As reference, the concept of integrated information was developed by Giulio Tononi but I applied it in a different field.

But representative democracy breaks down when moneyed elites take control of the voting system. Then it's just elites all around with no input from the population.

Forget money as some sort of concept that breaks democracy by allowing people to game the system. The bigger problem you have to worry about is the smooth-talkers, the influential leaders and all their legions of followers. Their single influential vote, counts a whole lot more than yours, or ours, and that single vote means no equality.

Switzerland seems to work pretty well by direct democracy.

I do recall reading up on that recent referendum they had about the capping of CEO wages that didn't go through. But thanks for the heads up, I'll look into what they have going on over there with their flavor of democracy.

Besides, having read the history of Athens, direct democracy can be described as mob rule, and there the problem of 51% of the population votes to kill off the 49% others was a very real problem. Every American probably can imagine the problems guilds created in medieval Europe, right ? Athens was a state where the equivalent of guilds could literally and legally decide to kill the competition (which they did, several times).

Besides, let's not lose sight of reality here. America would be a near-theocracy if it was a direct democracy.

Wealth redistribution doesn't necessarily mean taking money/wealth, literally, from wealthy and giving it away to poor. It includes, among others, subsidized education, free access to basic health care, nutritious food, potable water, eradication of epidemics, decent housing, decent retirement income and so on.

This is the problem I see in societies that are highly unequal (read US :-)) where in a democratically elected government is reduced to make way for capitalists. All or most of the above are controlled by multinational corporations whose sole motive is higher profits. So what ends up happening is that even a middle class family is just one calamity away (e.g., death of bread earner, a high cost health problem) from being pushed below poverty line. Even education for that matter has gotten privatized to an extent where only wealthy can afford good education; as various studies have shown education does make a significant difference when it comes to money earned over longer period. Or take 2008 recession where pension corpus of millions was reduced to zilch for no mistake of theirs.

Wealth distribution, at least in my mind, means that ensuring that most of the citizens are on level playing when it comes to basic necessities. Over and above that of course one must be rewarded as per their contribution to the society and hard work.

Poor are poor not just because they don't have money but also because they are unable to get out of it. They have to go through unspeakable ordeal just to get one meal a day and this places enormous cognitive load on the entire family. So of course children of poor, more often than not, remain poor as their basic intelligence itself gets suppressed due to lack of nutritious food, cognitive load etc.,

The book, "Poor Economics", was an eye opener for me in this regard. I once used to blame the poor for their situation but this book changed all of that. I would highly recommend it; to the extent that this should be made a mandatory reading in all colleges :-).

> We want to make sure that the incentives of the people in power are aligned with the people who are not in power.

This is really a tough ask. Unless decision makers, i.e., those in power, are accountable, every single day, to those not in power, decision makers will soon align themselves with private, capitalist corporations. You have a multi billion dollar arms manufacturer, oil corporations funding millions to election campaigns of US presidents. And then you have US citizens who get to vote once in five years; we also know that the voting itself can be rigged, public opinion can be swayed and etc., Now, whom do you think would the president side with? Oil corporation or US citizens? The answer is obvious! And so you will end up having Iraq war which is yet another way to funnel massive amount of tax payer money to private corporations; the cruel irony is that most of foot soldiers who are fighting the war and dying come from poor, disadvantaged families.

Democracy as it's played out in US (and India) today is a complete farce. The fact that executive powers and policy making is concentrated in so few a hands in itself is indicative that this isn't democracy. Instead of giving power to the few and somehow hoping that their interests are aligned with rest of the citizens what needs to be done is build strong institutions.

Democracy is fundamentally about strong institutions (court of law; education system; health care system; labor friendly laws) which are run and maintained by common citizens. Elected representatives' main job is do minor tweaks to the policies. This way the executive power remains with the commoner.

What has been happening is a very systemic eradication of these democratic institutions; privatized education, private health care; private police force; private fire fighters and so on. Once you have hallowed the core of democracy by privatizing it you are left with just a handful of elected representatives who wield enormous power over rest of the citizens. They of course end up serving private corporations. US is run and controlled, more or less, by just a handful of private corporations which are in turn owned by a hundred individuals. Election, democracy etc., is just to keep the citizens believing that they have a say in the way the society is run when the reality is completely opposite. India, following the foot steps of US, is getting there really fast.

[1] http://www.ted.com/talks/lawrence_lessig_we_the_people_and_t...

What? How could you possibly describe it any other way? You take cash from a wealthy person, and you give it to other people, either in dirk react payments or sbisized/free services.

Argue about whether that is the correct/incorrect thing to do all you lie, but don't indulge in Orwellian doublespeak that says true is false.

If you disagree with someone, then reply to their post and try to have civilized discourse, don't just immediately try to censor them.

The herd instinct is getting stronger, and the rush to censor unfashionable opinions increases on HN. Which is funny, because one of the best essays by pg is 'what you can't say'. Closely followed by 'mind the gap'. Which essentially says that inequality is a sign of a healthy society, because lack of inequality shows the innovators and risk takers have gone elsewhere or closed up shop.

Maybe it was my tablet spelling mistakes in my post.

Your views about these things aren't at all unfashionable on this site or in American society at large, and many who disagree with them still think they are reasonable and worth discussing. Your comment just didn't express your perspective very well!

If you can, I encourage you to edit it.

Edit: also, your argument adscribing the "Orwellian" adjective to the previous post is very strong and can generate negative reactions (like a downvote).

You could describe it in the many thoughtful ways in which the rest of the comment did describe it, for a start.

The comment it was in reply to also made it seem like the idea is to take wealth from a single wealthy individual and bestow it upon a single poor individual, noting that the newly wealthy individual probably doesn't know what to do with it (like many lottery winners). That is clearly not the intention of literally anybody who is in favor of some redistribution of wealth. Rather, they propose many different ways (some of which were mentioned by your parent comment) that wealth would be spread across many less wealthy people.

To then complain about "orwellian" use of language in the next sentence is just taking the piss.

That seems like it should be true intuitively, but if it were true, you'd expect higher benefit levels to correlate with higher rates of getting out of poverty. The data points to the opposite happening.

For example: http://www.manhattan-institute.org/html/cr_17.htm

Methinks that given the political bias of the study and the fact that it takes a particularly period for the American economy, that there's not much to learn from it.

Also, the fact that single mothers who were on welfare are now working is not actually a good indicator for me. I want the single mothers to have to raise their children in decent environments though maternal leave and good family policies, instead of seeing them work full-time out of necessity.

[0] http://www.rightwingwatch.org/content/manhattan-institute-po...

[1] http://www.manhattan-institute.org/southparkconservatives/

[2] http://en.wikipedia.org/wiki/Talk:Manhattan_Institute_for_Po...

Things have gotten better in countries which have reduced inequality: https://www.youtube.com/watch?v=cZ7LzE3u7Bw

Don't confuse persons with populations. They are not the same thing. A person is very different from a population.

Obviously we don't live in a world nearly static enough for this to occur. If so then the Zuck never would have made FB nor Carnegie would have left Ireland and we all would be worse off for it. Yes, these are historical issues. Lets try a future one.

Assume that Pablo is a UPS driver. Pablo notices that many times when he has to turn left to make a delivery, he spends a lot of the time waiting at a red left turn arrow light. Pablo, needing to make his metrics, decides to cross intersections and make Uturns and rights and all other sorts of maneuvers. Pablo shares his insights with his co-workers and friends. Everyone benefits from Pablo's insights, more packages are delivered, the company spends less fuel idling, everyone makes their metrics, etc.

Now in a world where the path was designed by Paco up at headquarters, Pablo could not make those alternative turns. If he did, he would have violated the paths that Paco designed and he would have faced repercussions. Why? Because Paco knows more than Pablo and Paco is the one responsible for designing the routes. You assume Paco has superior know how and experience and will be better. But Paco is just a man like everyone else, he makes mistakes and didn't see what Pablo was doing was beneficial. Not through malice, but just because Paco looks at google maps all day, not actual light cycles. It wasn't Paco's fault, nor was it Pablo's. It was just an oversight.

But in a world where we do not assume that the most experienced are also flawless, Pablo took it upon himself to fix the problem, and everyone is ok with that.

Multiply this example by thousands and you have a sense of what is going on out there. Also, sprinkle in some greed, malice, lies, sex and drugs, and all the other deadly sins and you get why we need democracy. It's because we all screw up, but if we screw up at least we can get each other out of it.

There is an excellent piece by Yvain that goes into deep details of those problems[0], so I won't be repeating him here much, but the world is full of such problems, and apparent stupidity of institutions and markets are usually result of inability to coordinate.

I'm not saying to give up democracy. But we have to appreciate that it has very troubling failure modes and that they're not theoretical.

Real-life democracy tends to be extremely impotent. It has tremendous operating costs (think of all the resources wasted in a zero-sum game of political campaigning), and in the end people still can't agree on things like building infrastructure (NIMBYsm) or creating laws that benefit the population. Again, I'm not saying "ditch democracy". But there is a huge trade-off between security of decentralization and effectiveness of centralization.

There's also the case that central planning doesn't suck that much - it sucks when done for humans by humans, because central planners operate at human speed. But consider that instead of Paco setting up routes, there is a computer named PCO, tasked with collecting real-time data from all drivers and optimizing routes. PCO may alter some of instructions it sends to drivers to explore the solution space, and it will quickly figure out that doing only rights leads to less fuel used. And then it may stumble upon other optimizations, like shifting delivery times in different parts of the city depending on traffic patterns - things that are impossible to figure out by Pablo, because they require global view.

I think that central planning got a bad name because of Soviet implementation, but with modern computing, maybe we should re-evaluate its costs and benefits.

[0] - http://slatestarcodex.com/2014/07/30/meditations-on-moloch/

Do you have any empirical data to back that up? The lack of old money that Gates alludes to in his article seems to suggest otherwise.

Even with the advantages that simply having large amounts of wealth gives you (better education, easier access to seed capital for new ventures, better access to other influential people etc), surprisingly few of the modern day mega rich in the US started out with large amounts of wealth.

There's also plenty of evidence (such as http://www.businessweek.com/articles/2014-07-22/for-ceos-cor...) to suggest there's little, if any, correlation between how much a CEO earns and the success of a company.

> The average person isn't as well equipped to deal with large problems as the elite are.

I would agree that not everyone is equally well equipped to deal with large problems, but I don't see much evidence to suggest that there's much correlation between wealth and ability to successfully tackle the myriad problems facing the average society. Is a multi-millionaire businessman automatically better placed to decide on education policy than a teaching professional, or on the structure of a nations health service than medical professionals etc?

Gates looked at a list of the very wealthiest people and asked how many inherited their wealth. Even if the answer is 0%, we could still ask about other brackets. Eg, how likely are Gates' descendants to be in the bottom income bracket? How likely are the children of someone in the bottom bracket to be middle class?

>I'm always very uneasy about equality talks because all people are not equally suited to make global policy decisions. Nor are they equally incentivized to make the most informed and rational decisions.

I completely agree with this, however I don't think the guiding principle behind having a democracy in the first place, is that you'll arrive at optimum (or even good) policy decisions, provided you give everyone a say. Rather, the franchise is supposed to serve as a check on the wealthy and the ruling class, so that they can not monopolize political power. If the disparity in wealth and power grows too great, they can circumvent even that, which is what we're seeing happen in the West now.

What is the proper alternative? I mostly agree that designing government by committee is unlikely to succeed, but the problem of choosing competent people for government roles is something we largely haven't solved in all our history.

Just because a policy maker is capable of convincing the public that something is in their best interests, does not always mean that it is.

However the fact that they have to works enough of the time that democracy is working better than other systems of government so far by many measures.

You are assuming the elite are far wiser and more ethical than the broad masses. That is not at all well-evidenced.

The fundamental attribution error is very pervasive.

This is part of why (as dumb as the average person is) I'm not down with the "elite ruling class" idea, even if we're basically stuck with that now whether we like it or not (except the elites aren't really individuals but large corporate interests who essentially own large swaths of government actors who supposedly represent citizens).

I tend to disagree but I guess it depends on your definition of "Elite". If I define "Elite" as wealthy people than you are wrong. Most rich people, especially if the wealth is inherited, have little to no idea how to solve "large" problems and what are the problems in the world.

I give you two quotes to think about. Both quotes are not meant condescending but just shows how out of touch they were with the common people.

Finally I recalled the stopgap solution of a great princess who was told that the peasants had no bread, and who responded: "Let them eat brioche." (Queen Marie Antoinette)

"An ancient Chinese emperor who, being told that his subjects didn't have enough rice to eat, replied, 'Why don't they eat meat?' (何不食肉糜？)Emperor Hui of Jin in Zizhi Tongjian.

Recently, capitalists aren't the ones disrupting the economy in the US, here in Brazil, in the PIIGS, or any other place that I looked. That position is always held by people with power, but little capacity of creating wealth themselves. At general, I think Bill Gates is right, and there's little scrutiny over the distributive phenomena in an economy.

If I had to choose, I'd tax consumption (with a VAT) and redistribute a fixed rate of it by a basic income. But that's mostly because of procedural simplicity and resistance to corruption. I don't think Piketty's ideas are complete enough to base a taxation system upon them.

Any time you're considering a tax system you have to consider the incentives it creates for people.

If you have a "wealth tax" then we have to consider how the rich will try to avoid it. First, people will convert from savings and investment to consumption. You ordinarily want to tax wasteful consumption and create an incentive for wealth creation, so that's doing the exact opposite. Second, people will convert wealth into forms that are either easy to hide from the government (e.g. gold bullion in a foreign bank vault) or are not considered wealth by the tax code or that have indeterminate market value. None of that is good.

Most importantly, the only way that a wealth tax is going to do what Piketty wants is if the rate is higher than the typical rate of return on capital. If it's lower then the effect can be no more than it would be by fiddling with the tax rate on capital returns. But if it's higher then the economic incentives it creates are catastrophic. It literally becomes more profitable to hoard cash in a mattress than invest it in anything that would disclose its existence to the government, or to move it all into foreign investments and take whatever steps necessary (up to and including renouncing citizenship) to eliminate any claim the country imposing the wealth tax has on it.

> If I had to choose, I'd tax consumption (with a VAT) and redistribute a fixed rate of it by a basic income. But that's mostly because of procedural simplicity and resistance to corruption.

This is actually a very strong alternative. VAT has an unintuitively strong similarity in effect to corporate income tax with the exception that it's much harder to avoid by diverting income to foreign subsidiaries because the VAT applies the same to imported goods as domestic. The existing corporate income tax is effectively a huge subsidy for goods imported from countries that have no or less corporate income tax.

And a basic income does exactly what you want in order to reduce the concentration of wealth: It gives people at the bottom and in the middle the ability to take the risks that promote upward mobility without having to worry about starving or freezing if it doesn't work out.

Note that one important reason why Piketty wants a wealth tax is that this would lead to much higher quality data on the wealth distribution (I haven't read the book, but he says so very clearly in his TED talk).

> But if it's higher then the economic incentives it creates are catastrophic.

Frankly, this sounds much too alarmist. First of all, the talk is always about a progressive wealth tax in the first place. That is, few people would be affected by the highest tier.

Second, if you think about the steady state, it's clear that wealth up to the level of the highest tier of taxation wouldn't be accumulated in the first place. [0] Yes, people would try to evade taxes, but they are already doing this today. [1] More likely, this would create incentives for donations.

As a final thought, the idea of using a VAT to finance a basic income is nice, but it doesn't help against wealth inequality, because poor people generally spend a much higher fraction of their disposable income on stuff on which VAT is paid.

[0] My intuition for this comes from income taxes: During the time when highest marginal rates were much higher than today, executives didn't bother bargaining for the ridiculously high salaries that they get today, and so few people really paid those highest rates.

[1] And if you're worried about people renouncing citizenship: I think we should grow a pair and get serious about exit taxes.

Using VAT to finance a basic income is only useless for redistributing income if income is already well distributed[1]. Otherwise, rich people will pay the majority of it (regressive or not) and poorer people will get better off. You are right that there's always a certain income that (if rich people do really invest it all) the combination will be regressive, but it can always be made big enough that it does not matter.

Also that's ignoring all the other benefits of both the VAT and basic income, in that they are cheaper than the alternatives to administer and easier to control, offer a safety net that actually works, incentive risk taking, creates no barrier for improvement at any level...

[1] Of course, the actual numbers will depend on the VAT rate, and the amount redistributed.

The problem with this argument is that it's based in the same fantasy land where people always report all of their out of state and internet purchases to their state of residence and pay sales tax on them.

> Frankly, this sounds much too alarmist. First of all, the talk is always about a progressive wealth tax in the first place. That is, few people would be affected by the highest tier.

That actually makes it worse. All the bad still applies to the people in the highest tier, but then you have the incentive to create criminal conspiracies for the purposes of tax avoidance, because putting assets in the name of someone with fewer assets will dramatically lower the tax rate. This creates a highly profitable arbitrage opportunity except for the fact that it would presumably be illegal, leaving an opportunity for criminal enterprise to step in.

> Second, if you think about the steady state, it's clear that wealth up to the level of the highest tier of taxation wouldn't be accumulated in the first place.

> My intuition for this comes from income taxes: During the time when highest marginal rates were much higher than today, executives didn't bother bargaining for the ridiculously high salaries that they get today, and so few people really paid those highest rates.

Those numbers are very misleading. The times when the highest marginal tax rates were higher also had dramatically different tax codes. In particular, "benefits" largely weren't taxed, so instead of a higher salary you would be provided with an expensive company car and whatever else necessary to provide the required level of compensation. It's the same principle as the existing corporate income tax: High nominal rates but the majority of large corporations don't pay those rates because there are widely known ways to avoid them.

It was also much more common back then for the executives to be the owners or their friends/relatives, so their "salaries" were only coming out of their own pockets anyway.

> Yes, people would try to evade taxes, but they are already doing this today.

Because the taxes we have today are also poorly conceived. What you want is a tax which applies to a very broad base and is difficult to avoid. VAT acquits itself very well on that front.

> And if you're worried about people renouncing citizenship: I think we should grow a pair and get serious about exit taxes.

Exit taxes are hopeless. Even putting aside how easy they are to avoid, the incentive that creates for the owners of growing businesses is extremely perverse: Renounce your citizenship now before you get any bigger and owe even more.

> As a final thought, the idea of using a VAT to finance a basic income is nice, but it doesn't help against wealth inequality, because poor people generally spend a much higher fraction of their disposable income on stuff on which VAT is paid.

This is a common flaw in thinking about taxation. What you spend the money on is just as important as how you raise it. Taking $50 from someone with a thousand dollars and $10 from someone with a hundred dollars but then giving them each $30 back is progressive notwithstanding that the effective tax rate on the person with a thousand dollars is much lower. At the end of the day the person who started with $100 now has $120 and the extra $20 came out of the pocket of the person with a thousand dollars. "Effective tax rate" is a totally meaningless number without "effective government benefits."

Comparing this to the current so-called progressive system is illuminating. For example, if a person making $500K makes an extra $5000 then they pay $1750 in taxes but don't lose eligibility for any benefits they were previously eligible for. If a person making $25K makes an extra $5000 then they pay $750 in taxes but also lose eligibility for more than $1000/year in need-based programs. In practical effect the marginal rate on the person making $25K is higher. Depending on what (and how many) programs they were previously eligible for, the rate can actually exceed 100% by simultaneously eliminating eligibility for multiple independent programs.

He then thinks that this would lead to changes -- because his data, no matter how good you think it is, is arguable and possibly wrong.

Add to that that the few people in power that do understand how data can improve policies normally have an idea what kind of improvement they'll get, and don't like it (they are in power, if they liked it, they'd already do it). While tax evasion is understood by everybody and weaken they power right now, in visible ways.

Also, the transparency is a benefit, but so is the tax revenue. We should at least cover the expense of the program and consider if there are other taxes that should be reduced.

I've only read people writing ABOUT Piketty's book, and haven't seen anyone put it this way.

I'm from Brazil, and with the upcoming elections people have been all sorts of crazy down here, throwing around whatever "facts" they can find on the internet. One of the main points of disagreement between the two presidential candidates is income distribution, so "data" about it has been all over the news and conversations.

This kind of tax, if only to shed the faintest light on the matter, would definitely help. Even considering that the really wealthy people would not declare everything they have, there's only so much you can hide.

Thank you for this comment.

http://www.nakedcapitalism.com/2014/05/pikettys-wealth-tax-r...

What we say is simple - if you have a million dollars and 100 people to share it - rather than 1 person have 990,000 and the remaining 10,000 divided among 99 we want the 1st person to have 800,000 and the remaining 200,000 to be divided among the 99. That way, the first guy can have his $5,000 wine without paying any extra tax while we have our $50 wine. In the first scenario, the first guy still gets his $5,000 wine but the remaining can barely afford two meals a day.

The wealthy are obsolete and dangerous; we need to move on as a society from the forms that enable them.

Many of them used rhetoric about redistribution to placate the masses, yes. But there was little different but names in the methods for allocating capital in Czarist Russia and the Soviet Union: The decisions were in both cases taken by a privileged elite insulated from the effects of their decisions.

Any mechanism of government can and will be abused. Some such mechanisms like those of centrally planned economies are not only more likely to be abused, but more easy to abuse. Worse, they are so very often employed by the same people who think on the matter and decide we're just going to have to kill the people who don't agree with us.

The only thing that makes us better is if we take those lessons from history as a warning and prioritize liberty first. These mechanisms prioritize equal outcome, which is a fools errand. Doubly so in a leaky economy.

Devil's advocate: the vast majority of productive people do the important everyday work, but don't perform major improvements in the state of the art. What about the inventors of life-changing technology? Would the vast majority of them invest years of their life in it if it only paid the same as getting a normal job?

Empirically, given that academia pays much less than working in the industry, yes.

> the vast majority of productive people do the important everyday work

I beg to differ. Most productive people do completely irrelevant everyday work: optimize or sell ads, or play wall-street poker with other people's money. Very few people do the actually important work (e.g. garbage collectors, farmers, scientists, teachers).

It seems in my experience that most people who invent life changing technology don't do it for the money; they do it because they like to create. Humans have an innate drive to create new things. While I think it makes sense to reward people who contribute to society, those rewards don't have to be unlimited.

I know you are just throwing out hypothetical numbers but what kind of wealth distribution would you actually want? Wealth is already much more evenly distributed than the numbers you said you want.

http://en.wikipedia.org/wiki/Distribution_of_wealth

I'd go the other way in fact, if you are interested in redistributing wealth, you should encourage rich people to blow money on labor-intensive consumables. Using legal or social pressure to keep the rich from buying luxuries seems counterproductive to me.

Just FYI, the line of thought of Gates here is probably based on the idea that you need "capital" in order to have a productive work force. If the rich spend all their money for consumption, then there will not be enough capital available - or so the argument goes.

I personally don't buy the argument; I believe that it goes too far into abstract models, confuses finances for the real world, and (like so much of economics) ignores the existence of banks. If Bill Gates were to sell shares to finance frivolous consumption, this would obviously not cause the physical destruction of factories and machines etc.

At the same time, it would encourage the companies he buys from to expand their production and invest. Now, some people may wonder what investors/financiers those companies can find if all the rich guys sell their investments to consume. Well, those companies can always go to banks, which have an essentially unlimited capacity for funding real-world investments.

Spending money doesn't make it go away, it just gives it to someone else. If everyone spent all their money for consumption, and no one invested, that would probably be a bad thing, but short of actually punishing investment compared to other uses of money, its hard to see how that would happen.

Heck, its particular hardest to see how it would happen with the rich, anyhow. Simple declining marginal utility means that past a certain point, the additional present consumption that people find useful drops off and the value of securing an adequate future support base by investing money now vs. consuming more now increases with increasing income. The idea that we need to tax-favor investment even more than we currently do by taxing only consumption (rather than taxing income, but taxing the income from investment favorably compared to "ordinary income" and particularly favorably compared to labor income) seems to be based on a conception of human behavior that has no support at all in how humans, and particularly the rich, actually use their money in the status quo system.

Well of course a government that attempts to do all that will be very powerful. And, of course people will spend large amounts of resources to influence a government with that level of power.

Once they have gained control over an industry, let's say steelworking or railroads, they become like feudal lords in that industry, setting wages and prices however they wish.

Power is subject to a positive feedback loop, whether it's political power or economic power. Having power makes it easier to gain more power. That's why it will always tend to concentrate in the hands of the few.

Government power in a democracy comes from a game of "artificial equality": elections in which every person has one vote, regardless of their power "in real life". (This is different from the economy, where your power is proportional to your wealth.) For this reason, it can act against the natural tendency towards concentration of power.

They're all in it for themselves. The key is to ensure that there isn't a big enough state to corrupt so they can consolidate and entrench their power.

A small state prevents monoloploies from being formed and from using those wielding power to consolidate their power. And then it doesn't matter how evil the guy who gets the top job is, because he just can't make a big difference.

At the heart of all this is how England managed to keep its Anglo-Saxon self-government traditions even after the continental Norman invasion and takeover. Because the Normans could only ever wield limited power at the state level, they could never fundamentally change the way the content was run at a local level. So citizen assemblies and English common law continued and was never replaced with continental law, the final iteration of which is based on napoleanic code. Thus in England, and her spun-off colonies, you're fundamentally free to do your own thing unless there is a specific law against it, while most other places state that you can only do something if there law explicitly states it.

This fantastic inheritance was all bequeathed to the citizens of those countries with legal systems based on common law precisely because England had a weak central government which reduced the ability of a king to control everyone, especially when that was a foreign king who had invaded.

I do agree that wealth is a potent weapon, but that's why capitalism works best when markets, and politics are well regulated. The degree and form of regulation is a perennial problem, but it's an unavoidable one.

Right now it does. There is far too much money chasing too few investment opportunities. This is causing bubbles all over the place. Money that would have been productively invested were there demand is being funneled into property, gold, the equities market, fixed income & even bitcoin.

>Or do you think the state is a more efficient investor of capital?

Sometimes it is. It's a myth that the state is incapable of efficiently allocating capital and the private sector always does a better job. Sometimes the private sector does an atrocious job (e.g. see the massive overbuild of housing in the last decade).

That being said, wealth redistribution doesn't necessarily need to mean less private sector capital investment. If you take a billion dollars away from someone who would have invested it and give a thousand each to a million people (whether through highway robbery or through raising taxes here and lowering them there), there's no reason they can't invest it all. Hell, they could invest it in a fund managed by the former billionaire, and you'd have the same amount of investment managed by the same people.

That situation is unlikely, but it also discounts the value of investments besides the sort that billionaires tend to make. While some redistributed wealth might be reinvested or 'wasted' on consumption, there are also be a lot of small investments that happen when you share the wealth. Children eat better, which improves their futures in pretty much every way. People start more small businesses, bodegas and farm stands and hair salons and startups. People spend money on education, for themselves and their children.

That sort of investment is also vital to our economic future, no less than the capital liquidity provided by the billionaires.

We do need investment in transport infrastructure, renewable energy, health in the developing world, etc; but that doesn't offer a direct return to the investor as the benefits are distributed. In those cases arguably the state can be better. Provided the money isn't siphoned away. This is more of a rule of law / public trust issue.

Do you have evidence for this claim?

If this is the case, shouldn't the countries with the biggest governments (as a percentage of total economy) also be the ones which grow the fastest, and if not, why? How can states be so efficient when they never admit to making mistakes, (almost never) give up on failed projects, or go out of business like private investors do?

I would also think that a system's efficiency would affect the economy as well as all other indices of interest (though perhaps in varying proportion), as a healthier, happier citizenry or one with more capital goods, and better investments would grow economically as well as in other metrics.

When you say "disarm", you really mean "disarm all but the state". That is very scary to any libertarian-leaning people, even if you are using the word figuratively. It makes sense only if you if you believe the government is so nearly perfect that other influence is counterproductive.

Imagine if only the government had enough resources for science? Or worse, nobody could afford to make their political message heard, so only incumbants are viable?

No large state has shown that it deserves that much power. I'd rather see a bunch of ads I disagree with than see no non-state messages. I'd rather that some non-state actors had enough resources to try an ambitious project that is politically unpopular (think stem cells a decade ago).

What should we do about them?

Fighting politicians is like whack-a-mole - even if you get rid of bad ones, the replacements are often just as corrupt as the ones that got replaced.

Fight the corruption first.

How can Americans be so upset at their political situation without even discussing ways in which to change it? Unconstructive complaints is just whining.

I agree inasmuch as it applies to government and media, but when it comes to entrepreneurship I could not disagree more.

Making progress means taking some big risks. It is the nature of big risks that it's difficult to tell at the outset which ones will succeed and which will fail. But the people who are probably best qualified to predict this are the people who have succeeded before.

If people can't take the spoils of previous success to invest in their next idea, we don't get SpaceX, Tesla, or Y Combinator. Would Y Combinator be better run as a government program, run democratically and accountable to the general population? I don't think it would.

Many countries have preferential tax treatments for long term investment vehicles already.

But ignoring that: What is the evidence that this money is best spent by repeat entrepeneurs? Yes, there are some that do well. There's also a vast number of people that succeeds once and never again.

And consider that e.g. Tesla and SpaceX both have benefited immensely from government programs. Maybe society would be better off with wealth taxes were the proceeds were pumped into more programs like these, or even co-investment with private investors with an actual track record track record.

Disagree. The good investor not only puts capital to work and creates wealth for others, he is also taking money out of the system. Since he is not consuming, the net effect of his increased capital hoard is to decrease prices across the board for everyone else. This can change once he decides to spend, but then he will pay consumption taxes like the others.

Funny, I'd call that a moral imperative, and go on to say that consumption is good. Even when it's on gaudy-ass McMansions, consumption usually means, more or less, that someone, somewhere, is actually having fun with his life. We ought to be encouraging that rather than encouraging nonstop accumulation of liquid financial wealth in the guise of the Virtue of Thrift.

Yes, "supposed to", but the representation comes through the voting process, and not everyone votes, so they really represent the voters. And I assume you mean the voters are swayed by the advertising that buckets of cash pay for, since outright bribes are illegal.

The politician who rewards campaign contributors at the expense of voters is thrown out the next election. There's a check or power built into the system, but a lot of the time the new guy is bought off too. Usually the more competition and transparent the industry, the harder it is to buy off a politician. The less power a political office has, the less it will be bought off. There are all sorts of ways to fix this problem without limiting political speech.

Supposed by whom? Certainly, even ignoring ways in which the practice deviates from the overt design, the US government doesn't even pretend to be structured in a way in which all citizens have equal representation.

Second, if you believe law should only punish us for actually hurting people and not potentially hurting them, then you are against speed limits.

Third, taxes are not punishment any more than piracy is theft and abortion is murder.

Germany has roads without speed limits, and they're doing just fine.

> Third, taxes are not punishment any more than piracy is theft and abortion is murder.

When did I say "taxes are punishment"? I was responding to the idea that we should take away rich people's money to prevent them from having too much power, which I think is a terrible slippery slope. Direct quote from GP:

> Wealth taxes are about disarming everyone -- good and evil -- for the safety of us all, not about morality.

Edit:

> First, a pretty face, high IQ and physical strength do not translate into power the way, say, a hundred million dollars does. Sure you can hurt people if you're physically strong / attractive / smart, but not that many people.

They do if you go into politics or the military.

So I think the notion of a slippery slope towards eugenics is absurd; that's like saying that dancing leads to lynching because both involve crowds of people and tend to happen at night. That's not to say that there isn't a slope towards, say, absolute communism or radically unfair property seizure, but that's way less scary.

In case you're curious how I came to that conclusion, here goes: in most cases (not involving criminal situations), private property is basically a store of our previously invested time. We spend a portion of our lives on learning skills and then applying those skills to certain ends, such as making money and acquiring property. If we assume that a human lifetime is finite, then reserving the right to redistribute private property and wealth is basically reserving the right to take the most valuable resource humans have - their time on this Earth.

So if I'm working 10 hours a day and I'm being taxed some 40% (through a combination of income, property and consumption tax), then it means I am working only 6 hours for myself and my own personal gain, and the remaining 4 hours in fact belong to someone else. Now, I apologize in advance for this loaded language, but to me, that is a form of slavery. No one has the right to demand, at gunpoint, that people give their time and person to an end that they don't care about and that doesn't directly improve their situation.

I feel very strongly about this, to the point where I left my country of birth (a European country with ridiculously high taxes), for a much better place where the taxes are much lower and more reasonable. It's a clear example of capital flight, on a smaller scale. I know my opinion is extremely unpopular in this day and age, but it is what it is. To me, strong property rights are some of the most basic human rights, no different than freedom of speech or association.

I think the origin of my socialism is that, honestly, I don't trust things. This is a topic that often comes up in Bitcoin threads: there is no such thing as a perfect store of value. There is no thing I can invest my time or money in that will not decay or depreciate over time. Currencies inflate. Houses fall down. Land fluctuates in value and can agriculturally fail. The gold supply inflates at a roughly constant rate of 1.5% as people dig more up. Uranium decays, albeit slowly.

On the other hand, I have a very positive view of social networks. I grew up in the middle of a strong safety net. My parents, my siblings, my aunts and uncles and cousins, we grew up close. If I needed help, they'd give it. If I lost everything today, they'd take me in for as long as I needed. Since then, I've acquired a few close friends who would help me out, with a job or a place to crash.

So even if I cannot trust my things not to betray me, having fifty people and all their resources there to catch me if I fall brings me a great deal of security and comfort. So I like the added layer of protection that comes from a safety net of 300 million people. I don't view taxes as something being taken from me, I view them as an investment I'm making in the only resource which has a chance of holding its own against time, no different than the time and money I invest in my kith and kin.

My issue with the concept of centralized power in the society is that it has a tendency to consolidate over time and if left unchecked, tyranny is almost inevitable. Sure, you trust your government now, but nation-states generally have a very ugly history of oppressing and even exterminating portions of their population every once in a while. I just don't believe that they can be trusted not to do it again. Not everyone is a good person, and many people in the higher rungs of power tend to have psychopathic tendencies.

So at the end of the day, you don't trust your physical assets not to betray you, but you tend to trust the society you live in. My mindset is completely opposite: I don't think that people can be trusted not to do bad things. You mentioned bitcoin, and I think this is one of the elements that it solves almost perfectly: it eliminates the need for trust, if used correctly. Strong gun rights solve the same problem, they almost completely eliminate the need for trust: I don't have to trust the society to respect my property rights, I just have to trust that most people are not crazy enough to try to get themselves shot.

I think socialism is a nice concept and I think that the idea of helping the less fortunate is commendable. The problem is that it has to rely on the coercive element (uniformed men with guns showing up at your door) if you disagree with the system.

Not to drag this out much longer; as someone who strongly believes in non-violence, self-ownership, self-governance and rejects most forms of collectivism, I can't agree with pointing guns at people in order to create a safety net for others. It defeats the spirit of charity and looks more like extortion and robbery. In my opinion, helping the less fortunate should a voluntary act that stems from one's desire to do good, rather than fear of being violated.

It's the fat cat guys are the ones that are draggin us all down.

You should be FAR more afraid of all the incompetent "big shot" politicians who somehow have access to power but, due to their insecurity and low IQ, only use it to benefit by taking from others. These are the plutocrats that rule America, Russia, Europe, regardless of your illusion of democracy. These are the people you should be worried about.

Anyway, taxing in this way imposes a moral judgement on the use of a person's wealth... I consider myself a pretty liberal person, but even I see a problem with 'punishing' a person for spending a million on a yacht rather than starving children. We can incentivize that by making it tax-deductible, but that does nothing to solve the problem of the income tax disparity. I work a lot of hours and my payroll taxes are much higher than capital gains taxes--as Buffett and others have pointed out, that's what's unfair but it won't change as long as the people who get their income from capital gains have the most power to influence politics.

[0] http://en.wikipedia.org/wiki/Time_value_of_money

Here's why the latter makes more sense to me. It's only at the risk-free rate of return that the two products you describe are of equal value. In order to realize returns higher than the risk-free rate, investors must do work. I think that the extra gain beyond the risk-free rate should be taxed as ordinary income, because that's really what it is: income produced by work.

Of course, actually implementing this policy isn't quite trivial: it requires a running estimate of the risk-free rate of return that can be agreed on politically, and it requires knowing exactly when assets changed hands (down to the nanosecond, for HFT). But it's well within our computational capabilities at this point.

So, should people who just stick their money in the bank at 0% for some period of time be able to claim a small loss on it? I would be fine with that, actually.

1. Are you claiming that taking risk is a form of work? Because the correlation between risk and expected return holds up very well empirically, and it'd take a lot to convince me that buying shares of an S&P500 ETF is a form of work that I should be taxed on. Even if risk and expected return had no correlation, it'd still only require luck, not necessarily skill, to often realize returns higher than the risk-free rate--just purchase one share of each of 100 risky stocks, and I guarantee that you'll have a significant return on at least one of them.

2. There is a shockingly large body of evidence that excess returns, for the vast majority of people the vast majority of the time, are the spoils of luck, not work. Mutual fund managers, for example--whose literal job it is to earn excess returns--perform in aggregate roughly as well as the market, and the very best performers, at the extreme tail of the distribution, in one year are barely more likely than chance to do better than average the following year, and people in the bulk of the distribution are essentially flipping coins.[0] Again, these are people whose job it is to beat the market, and they're failing miserably.

3. In cases where people really are working for returns, I completely agree with you. This is income and should be taxed--as income. But in cases where someone is investing their own savings, they really are just trading a certain present value for an uncertain future value.

[0] http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1356021

Yes, because you have to decide what risk to take.

> it'd take a lot to convince me that buying shares of an S&P500 ETF is a form of work that I should be taxed on

It would take a lot to convince me that you should pay a lower tax rate than I do on the money you make, just because the work you do is trading the stock market. (Essentially all my income is ordinary income.)

You may have a theory that says that your expected return from buying ETFs right now is higher than your expected return from buying T-bills. But if so, you had to do some work to develop that theory. In the absence of that work, the best predictor you have of the future value of the ETF is its present value.

> There is a shockingly large body of evidence that excess returns, for the vast majority of people the vast majority of the time, are the spoils of luck

Fine. I have even less problem with taxing luck than I do with taxing work.

> In cases where people really are working for returns, I completely agree with you. This is income and should be taxed--as income. But in cases where someone is investing their own savings, they really are just trading a certain present value for an uncertain future value.

Making money consistently in the market takes work. If you don't believe me, ask a trader.

But again, I don't care about the distinction between luck and work. I don't care what your effective hourly rate is. Taxation is based on the amount of income, not on the amount of work it took to obtain it.

Let me make that concrete. I have a side business, with a partner, that brings in a mid-five-figure annual amount that we split roughly equally. (It's a support contract for a product we used to work on, sold to one of the last people in the world using that product; the company we worked for that produced the product is defunct.) In recent years I have needed to spend about 10 hours a year on this business.

I wouldn't call it life-changing, but it's a nice little piece of change and I feel very lucky to have it. But the IRS doesn't tax me at a lower rate just because luck was involved or because my effective hourly rate is so astronomical.

There is a big difference, of course, between this business and trading: I have no money invested in it that I could lose. But this points up what the real question here is: how much do we want to subsidize risk-taking as opposed to other kinds of productive activity? And I don't see why, at the moment, we would want to subsidize it at all. Our economy is already over-financialized, and this shows no sign of changing soon. I'm sure there are some macroeconomic circumstances in which incentivizing risk-taking would make sense, but the present day is not one of them.

You began this sub-thread by making the following claim:

> It's only at the risk-free rate of return that the two products you describe are of equal value. In order to realize returns higher than the risk-free rate, investors must do work. I think that the extra gain beyond the risk-free rate should be taxed as ordinary income, because that's really what it is: income produced by work.

With this in mind, look at the following table, based on historical returns since 1928:[0]

                Stocks  TBills  TBonds
    Arith avg.  11.50%  3.57%   5.21%
    Geo avg.    9.55%   3.53%   4.93%
    Std Dev     20.02%  3.06%   7.85%

1. Buy $1000 worth of equity ETFs. Sell them in 10 years. Expected value: $2,489.57. Expected tax paid: $223.44 (22%).

2. Buy $1000 worth of T bill ETFs. Sell them in 10 years. Expected value: $1,414.69. Expected tax paid: $62.20 (6.2%).

3. Buy $1000 worth of T bond ETFs. Sell them in 10 years. Expected value: $1,618.07. Expected tax paid: $92.71 (9.2%).

4. Hold $1000 worth of cash. Expected value: $1,000. Expected tax paid: $0 (0%).

Do these four products have unequal present values? No, they are equally valued at $1000, despite the fact that stocks have a higher expected return, because people are risk averse.

Are some of these products likely to realize returns higher than the risk-free rate? Yes--riskier assets typically pay a risk premium.[1]

Does investing in stocks require more work than investing in T bills or bonds? No.

Does investing in stocks require more work than investing in bonds, where "work" is defined as "possessing knowledge of, and acting on, the fact that higher risk assets typically have higher returns"? No, such knowledge is neither necessary nor sufficient. Unnecessary because plenty of people invest in stocks without any underlying research because they've been told to do so, or pay someone else to manage their money for them. Insufficient because plenty of people prefer the stability of lower-risk assets to stocks' higher expected return.

Look, I don't work in finance either. I'm a software developer. I try to save money, and when I do, I throw it into an ETF that tracks the market as a whole. I don't try to time the market. I don't try to identify growth markets or over- or under-performance of asset classes. If I wanted risk-free returns, I could use the time I spend logging into my brokerage account and buying equity ETFs to instead... log into my brokerage account and buy bond ETFs. Or I could use that time to log into a savings account and transfer money over from a checking account. I completely reject the idea that my personal decision to purchase stocks instead of bonds is work.

If you want to change your position to claim that taxation should discourage risk-taking, I strongly disagree, but that's a different argument entirely.

[0] http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/...

[1] http://en.wikipedia.org/wiki/Risk_premium

They only have that power because the rest of the country is disorganized/divided and un-unionized. There's more than us than there is of them. Ultimately they will cede this power at some point - the question is simply when.

Shinkei already put scare quotes around the word "punished" so any reasonable person should interpret that he does not mean "punish" in a formalized legal sense. His usage was a figure-of-speech and not citing any legal doctrine.

People can use <scarequotes>punish</scarequotes> the same way people can use <scarequotes>reward</scarequotes> when then say they felt "rewarded" with a tax credit for buying a hybrid electric car or installing solar panels. This is possible even though the word "reward" is nowhere stated in official USA tax code regarding those credits.

I'm not saying he attacked Shinkei. couchand criticized the message and not the messenger which is certainly acceptable. I'm pointing out that he's criticizing a figure-of-speech by stating to us the legal literal definition of "punish". Because couchand didn't parse Shinkei's "punish-as-in-sentiment", he made the mistake of equivocation[1] and talks about punishement-as-in-prison-sentence-from-illegal-tax-evasion.

It's as if someone says "butterflies in my stomach" and a nitpicker adds a ST-MrSpock/ST:TNG-Data type of literal reply. Mr Spock asks, "Why do people use the term 'butterflies'? Caterpillars cannot incubate in the human stomach and metamorphose into a butterflies." Most observers would find that response annoying instead of being relevant to the conversation about nervousness.

Sure, there can be other motives such as helping someone conquer stage fright but hopefully you agree that correcting someone with formal biology definitions of "butterflies" does not achieve that objective at all.

[1]http://en.wikipedia.org/wiki/Equivocation

You usually purchase an admission ticket without being coerced to do so. Tax forms are filled with threats about what will happen if you do not comply. So while "punish" may not be the right term, it isn't anything like an admission ticket.

Your sentences are textbook examples of equivocating.

>People use the term punish when they feel like they've been punished.

Yes, they often do! Notice the word you just used to describe Shinkei's post? You wrote "feel" to describe "punish-as-in-sentiment-figure-of-speech". It's feelings/sentiments/perceptions etc.

Your attempted explanation after that was this:

>you're only punished if you fail to pay.

This is "you're only punished-as-in-assets-seized-or-go-to-jail if you evade taxes". It's a switch in semantics.

Because punish-as-in-sentiment is not equal in meaning to punish-as-in-jail, your proposed clarification is a non sequitur.

Since you're not aware of why one type of meaning (feelings) is not relevant to the other (jail), you are equivocating.

>I'm trying to figure out why people immediately think they are being punished by taxation somehow completely forgetting the [government services]

I know and it's understandable that you want to satisfy a curiosity. However, you'll just annoy people if you're equivocating 2 different meanings to justify your perspective while asking your question.

If someone says they feel "raped" by high taxes, you don't ape MrSpock and say "I see no genitals forcefully entering any orifice so I don't understand why people call it rape."

>they are an admission ticket to society.

They are not an "admission ticket". Admission tickets are pieces of paper that you submit to an usher or gate agent to be admitted to an event or airplane. (If you find that dissecting-figures-of-speech with literal definitions to be annoying, you've experienced firsthand why equivocation derails the discussion and is not helpful.)

Lastly, it seems like your answer to Shinkei was based on thinking he was against all taxes. If you read his post again, he was playing devil's-advocate for paying "punishment" taxes on a yacht. It's entirely reasonable for that type of person to raise taxes on himself for more police officers but feel punished for extra consumption taxes on luxury items since he's already paying sales tax on it.

By and large, the more you tax something, the more you discourage it.

In particular, in a discussion of wealth tax vs. consumption tax, you can't rely on the naive assumption that elasticity of consumption has a significant bearing on the net effect of a consumption tax.

See, e.g. http://ntj.tax.org/wwtax/ntjrec.nsf/4E562450B2F268D985256AFC...

Doesn't your use of "self-servingly" here apply to anyone who acts consistently on their beliefs?

If Gates (a) believes that philanthropy is ethical and effective, and he therefore both (b) engages in philanthropy and (c) advocates philanthropy, then (b) and (c) are separately consequent to (a) (which is a consistent principled stance); (c) is not due to (b) (which would be a self-serving rationalization).

It doesn't seem that way to me -- the "self-servingly" is applicable because it's deflecting Piketty's general criticism away from Mr. Gates personally. I don't see how you generalized this.

I'm not overly fond of TED talks nowdays, but this one still sticks out as awesome. http://www.ted.com/talks/dan_pallotta_the_way_we_think_about...

Basically, I think the argument is more that we might be better off if philanthropy was viewed as just another form of consumption.

Investing and consumption should be treated equally.

Investing is not inherently 'better' than consumption. Both create jobs. Both are done for selfish reasons.

The only difference is that shifting the tax burden to consumption instead of investing is inherently regressive - since the poor spend more than they save and the rich save more than they spend.

Saving is its own reward. It doesn't need added tax incentives. Having added tax incentives is just another way of covertly favoring the rich.

Who do you favor with the tax system? The guy who successfully invested in the startup and reaped massive rewards AND the guy who invested in a pets.com? Or the guy who blew all the money on cocaine AND the one who spent it on a private education for their kids (tax treatment: consumption)?

What about all the people who make the super-yatchs for the wealthy. Or the all the contractors employed to make the luxury towers in downtowns across the world. Tens of thousands if not millions of people directly gain (and likely from the middle and lower classes) from the spending of the lavish-lifestyler.

Who is to judge if this big-spenders behavior is somehow something we should curtail. Instead, we should fear the money hoarder, who keeps large amounts of capitol out of the market, hides it in tax shelters in Ireland, or re-invests it in ways to achieve political gain at the expense of society.

I'm not so sure philanthropy should should have a morally superior reward status in the tax code, when we can't really calculate the effects of spending enough to truly show what is most beneficial to society.

What, like all ten thousand of them, across the entire globe?

Or the all the contractors employed to make the luxury towers in downtowns across the world

What, like all the semi-legal immigrants and blue-collar workers? Those people often are barely getting by, and it's kind of feast-or-famine work.

A cynical person would say that's pretty much what the Gates Foundation accomplishes.

Cash flows. It circulates. And as long as it keeps moving, there is usually enough for everybody.

Wealth inequality is like a small group of people continually siphoning water into bottomless private cisterns. Eventually, the rest of the world becomes a desert. The problem isn't that the cisterns exist, it's that the water flowing out is nowhere near the amount flowing in.

I see the problem as too much lending and investing and not enough spending among the wealthy. It's like demanding that the people whom you charge to drink your water can only piss in your toilets. When you spend the money, you give up control over what happens to it next, and that is what allows the next guy to spend it freely. When you lend or invest, that next guy still owes you. No businesses can afford to cater to him, because the money he has isn't really his.

That's why the lavish spender is not the problem. When he eats a $500 steak, that money goes out to support servers and busboys and chefs and butchers and cattle ranchers. And it goes from them to television actors and book authors and electricity workers and personal trainers and dog walkers and auto mechanics. The cash flows. It circulates.

With the guy that buys a 50% stake in the restaurant with his cash, without providing any actual competitive advantage to the business, that money doesn't actually help anyone unless the previous owner can improve the business with it. Except now he has half as much incentive to do so. All those people down the chain only earn money if the restaurant can sell more steaks. If putting your name on the front door doesn't convince more people to walk through it, buying part of the business is not benefiting anyone except the new part-owner.

That's why I oppose both consumption taxes and income taxes. Both discourage the free flow of cash through the economy.

A tax based on the increase in one's personal wealth would be far more useful. It discourages only excessive hoarding. Philanthropy that yields control of the cash is the best, as the services and goods obtained don't even count against your own balance sheet.

The big spender is actually the good guy, provided that he is still able to spend as much as he earns. That's the real job creator. His willingness to spend money is what makes people want to sell him goods and services. If he only invests, those businesses still need to find actual customers who are willing to spend their money.