Corporate dividends are taxed, while interest paid is not. This encourages debt financing. It's a subsidy program for lenders. It fuels leveraged buyouts; "private equity" usually means converting equity to debt. It also fuels stock buybacks as opposed to dividends. This causes a huge distortion in business financing, and it accrues to the benefit of banks. It would be straightforward to fix this as part of tax reform, but the banks would scream. We're not going to fix this in the US until we have a Goldman Sachs free administration.
The other big subsidy program for lenders is borrowing money from the Fed at low rates which can then be lent at much higher commercial rates. That's the welfare state for banks.
It doesn't have to be that way. Japan and China inject money into the economy by building, and sometimes overbuilding, publicly funded infrastructure. The banking system plays a lesser role in economic stimulation. This has its advantages; usually the infrastructure is good for something.
> Japan and China inject money into the economy by building, and sometimes overbuilding, publicly funded infrastructure
I wouldn't point to these as a panacea for economic policy. China has ghost cities which they won't populate: the people for whom they were built can't afford to live there.
Japan is overworked, sleeping in the office and drinks with the boss are mandatory. Is that the society towards which we ought to advance?
Not excusing the short term interests of America's big banks, however, you need to be ready for other disadvantages if you change the way the game is played in America.
What does Japan's seniority focused work culture have to do with his point? It's not a work environment I liked but it has nothing to do with the government spending money to improve infrastructure.
China has ghost cities, yes, but it also has some incredibly impressive new high speed rail networks [0]. This scale of infrastructure building looks like it would be impossible to do in the US, given the difficulty of building just a single line between SF and LA [1].
An immediate relative of mine worked at the Hillside Workshops in Dunedin, at the time the Chinese were given a contract to build the passenger carriages. I remember very clearly the stories he told me, when the carriages arrived:
every single one of them had to be rebuilt. Welds that should have run the length of plates were often just enough to get it to hold together, and not the full length. Pipe were substituted for solid metal bars. Low quality steel was used, stuff that would disintegrate when struck with a hammer by one of the engineers. The "cheap" contracts that the National Government sought ended up costing much more than what it would have cost them to build locally.
I wouldn't be very keen to ride on the high speed Chinese rail networks.
Li Keqiang admits China has a quality problem, and it's becoming a state priority to address that.
It's getting better. Jet brand machine tools used to have huge quality problems around 2002, and now they mostly work out of the box. It was clear at one time that Jet was shipping their rejects, but that seems to have stopped. They're still below Hardinge, but up there with Delta now.
Japan's rail is also highly capitalist. The JR system was denationalized in the 80s and no longer receives any subsidies; there also is strong regional competition from privately owned rail lines.
> China has ghost cities which they won't populate: the people for whom they were built can't afford to live there
The cities aren't empty because of economics. This is not a big secret. They were built as part of a social plan, along with a nice boost to the economy since they are their own raw material supplier (steel in the US almost exclusively comes from China). The Chinese "ghost cities" are a complete nonsequitor in regards financial planning.
And for the individuals who receive the interest, they have to pay regular income tax rates on that income. With dividends they get a different, lower rate.
Yes, because the corporation is already paying 35% tax on the profits that the dividend was paid out of, while interest payments are deducted from taxable (corporate) income.
Yes, through an unrelated tax dodge that wouldn't make the combined dividend + profit tax any more sensible. They're still paying 35% on any profit that hasn't been expensed away somehow, and the dubious ways to expense corporate income are a separate issue from whether this "low" dividend tax is a loophole.
For a pension fund, its beneficiaries will eventually pay regular income tax rates on the fund's earnings, regardless of whether it was dividend/capgain/interest.
Life insurance and disability payouts are typically tax-free because they're paid into with after-tax dollars, but the insureco will invest the funds as it sees fit.
or instead of trying to have bureaucrats and lawmakers tinker with the delicate balance of the market would just ... leave it alone. its really had for the market properly allocate resources when lawmakers keep raming through all there little pet projects from special interest.
Lately I've been thinking about how funny it is that we make heroes out of the heads of tech companies.
Especially in technology, does anyone really believe that if these particular individuals hadn't contributed their talents, the world would have turned out much different?
Would there be no operating systems without Gates? No social networks without Zuckerberg? No search engines without Page? No e-commerce without Bezos? (Granted, Bezos is pretty exceptional.)
Why should particular individuals capture such massive rewards when their success had more to do with circumstance than anything else?
(There's a connection here to the "great man theory" of history and its critiques.)
These people were all popularisers and marketers, not original inventors.
There is actually no good theory of social value underlying capitalism. "More money = good, less money = bad" is crude and unsophisticated nonsense.
The reality is that there are many different activies creating "value": original invention in different flavours, packaging and industrialisation, marketisation, promotion, sponsorship, monopolisation, wealth capture and tribute collection, destructive resource extraction, sustainable resource extraction, and so on. Among others.
Only some of these generate real value. Others consume real value. But market theory is too clumsily unsophisticated to highlight the distinctions in a way that maximises productive creation while minimising unproductive capture.
Page Rank is named after Larry Page (not, as some erroneously believe, after web pages). Google is unique among the companies named in that it did actually grow out of original search engine research.
With respect to Microsoft, Facebook and Amazon, you are more correct. For instance, MS-DOS was originally QDOS (Quick 'n' Dirty Operating System) and bought off of another Seattle company by Microsoft.
Page Rank is not rocket science. Sooner or latter someone else would have come to the same conclusion (using incoming links to asses popularity).
I don't doubt that Larry Page is a talented man, but he was in the good place in the good moment. Now Google is in a dominant position and there's no place for any competition, but if Google never existed, we would have some other company doing similar things as Google. Maybe they would have appeared one year later.
> Sooner or latter someone else would have come to the same conclusion
Indeed, at the same time as Larry Page was thinking about PageRank, Li Yanhong created and patented RankDex (a very similar page ranking algorithm) over in New Jersey - and built Baidu out of it.
Many scientific discoveries seem simple after the fact, like the Einsten's E=mc2, yet somehow it took one of the greatest minds in history of mankind to come up with it.
But then, why should particular individuals capture such massive capital when their success has more to with circumstance than anything else ?
It's also funny how we make heroes out of corporations themselves, not only their heads : technological advance is often attributed to some specific companies, and we don't see that as appropriation of the results of particular circumstances, but as a sign of the performance of this company.
However; Would there be no XXXXX if we didn't live in an environment that attributes the results of circumstances to specific individuals ? I really don't know.
I don't find your point coherent. Why should anyone be paid well for anything if their revenue generation is due more to circumstance than anything else?
How far down the rabbit hole would we be going to go with this? Who gets to decide what the capital cutoff point is for "too massive" and the contribution cutoff point is for "due to circumstance"?
If I don't believe in free will, and thereby claim you make too much money because you technically weren't responsible for any of your actions and never chose the outcome that happened, can I incite a communist revolution and seize your assets? If I feel someone won the lottery because they were lucky, do I get to take all their money because they didn't contribute value or "earn" it in a way that I find agreeable?
Can you give me an example of someone who is wealthy who earned their money in a manner that isn't arguably due to circumstance? As it stands, I can't think of an example that is materially different from a tech CEO who happened to be in the right place and right time. Go far enough back and every idea and execution on that idea is due to chance. But that applies to everyone, not just tech CEOs, or whoever the robber baron of the week is.
Who gets to decide? How about all of us voters, taxpayers, and citizens, collectively, in a democratic fashion?
I'd be fine having a discussion about what's "too massive" for a company and trying to figure out how to balance the interests of society and any given company (and its constituent individuals). But I'd like to start from a position of, what do we want society to look like? rather than a position of, how do we preserve the status quo?
You do get to decide. You either reward them by being a consumer of their products/services or you don't.
Sorry, looks like you got outvoted.
Now you want to sit on some panel of judgement to overrule the public.
I love it when people say stuff like this. Society has spoken. You simply don't like their decision so your answer to is to create some super-powerful organization that can veto the public and instill its own version of what society should look like.
What? Those companies exist because society has granted them permission. That "super-powerful organization" is the government. Always has been, always will be.
Fortunately, now, for the most part, in the west, we all get a say in that super-powerful organization.
It, and everything it spawns, like mega-corporations, exists to serve us, not the other way around.
GP is likely referring to the startup lottery. Why did amazon win and pets.com fail? Why Facebook and not Myspace or orkut? Right place, right time + skill to make it + lucky = lottery.
You really believe that the different between MySpace and Facebook is total lottery? Circumstances? MySpace sucked. It was an idea that was executed very poorly. Letting users turn their profile pages into CPU sucking machines was one of many poor choices made by the company. The reason Facebook succeeded and MySpace failed was because Facebook made different decisions than MySpace did.
This whole concept is like saying, well, one guy decided to do the things he loved, go to baseball games, get drunk with his buddies, and watch copious amounts of TV. But this other guy spent 8 years educating himself and working his butt off accomplishing many things. Let's reward them equally because they both grew up in the same town thus should have equal outcomes.
They take large risks, and do work that not many people would be able to do - there aren't that many Bezoses and Musks out there. It's not just luck and circumstance, despite the current common narrative around success. That's certainly one component, but people at least partly make their own luck via their outlook and skills.
If you want people to continue to take large risks, you need to offer them good rewards if they succeed, and/or reduced downside in the case of failure.
The reward is the power to do what you want, and bend the world to your whim. Money is the enabler of that. And yes, I think that the power to do what you want is a very large driver for people like Jobs, Musk, and Bezos. If you prevent them from getting lots of money for their efforts, you necessarily limit their ability to gather power. Everyone seems to always think that money is for getting a faster car or a bigger house, because that's most people would buy a car or house if they had money, but that's not really the primary driver past a point.
I had a teacher in highschool that put it this way (paraphrasing): "After a certain level of wealth, it just becomes a game and money is just points to keep score."
> there aren't that many Bezoses and Musks out there
How would you disprove this belief, short of an alternate-universe device?
To me, it feels a bit like saying: "There aren't that many apex predators, therefore Leo the Lion must have incredible intrinsic properties"... Ignoring the fact that the local ecosystem doesn't allow that many contenders in the first place, and overlooking how many baby lions Leo kills.
Anecdotally, if you know a lot of people who act like them. I know very few that are that driven in the face of no further material wants. Not everything needs to be proven. You need to have a bit of a lust for power to want to push to those levels.
The ability to kill all your other competitors does imply something about your intrinsic properties. But I don't think that's very apt in this case, Musk and Bezos aren't intentionally killing lots of competitors in the cradle. The ecosystem comparison might be a bit more apt, and there are certainly a number of people who are very driven and long-term-focused who never achieve the same heights, because you can only have so many megacorps in each field. But I think those people that don't achieve the peak still end up much better off financially than pure luck and circumstance would imply.
I was mainly arguing against the sad-sack sour grapes tendency I've noticed recently to say that very rich people are just luckier, and are no more deserving of their status than anyone else. That is, frankly, bullshit, unless it's inherited.
That's not to say we shouldn't strive to give the educational and financial resources for everyone the opportunity to thrive, I certainly think we should do more there. Bolstering our state university system so that it once again offers everyone the chance for a very cheap high quality education would be a great start.
I think that human nature biases us so strongly to inventing stories/causes (even when there are none) that it's almost impossible for us to accidentally assign too much importance to random factors.
It's a constant (and often un-examined) uphill battle against stuff like the "hot hand" fallacy or fundamental-attribution-error.
That's why I feel the default assumption should be that they got there by chance rather than that there's some kind of narrative cause we find instinctually pleasing.
Gates bought his OS from Seattle Computer Products where Tim Paterson wrote it over four months merely to fill a temporary gap. So many people have written OSs for convenience, pleasure, etc. We needed an OS monopoly about as much as a financial plague. It made Gates et al rich at all our expense.
The naive version you argue against here is fairly common. Some people actually think that if Edison hadn't invented electric light, we'd still read by candle light!
In reality, someone else would have invented the same or similar things fairly soon afterwards if these "heroes" hadn't done it first.
Then again, advancing the state of science and/or technology planet wide is enormously valuable, even if just by 1 month.
There is no way to measure this, but my guess is that without Steve Wozniak, microcomputers would surely have happened, but maybe 1 year later. What's a jumpstart like that worth for humanity as a whole?
It's really hard to tell if without the work of these people the world would have been different today. But I thin there is more than that, even if you grant that no something like Microsoft would not have existed without Gates, it probably would not have existed without people like Gates, and without the incentive for those people to manifest themselves. And it surely it wold not have existed without huge amounts of money to be invested in this venture.
Hero entrepreneurs become heroes for two reasons: 1) vision, and 2) the ability to coordinate massive effort in order to achieve it. Many people have vision, but don't have influence to make a change. Many people have influence but don't envision anything ground-breaking. And finally, the vast majority of people have neither vision nor influence. It's the combination of both which is extremely scarce and at the same time extremely efficient, which rewards bright individuals who have it.
It has to be noted though, that the same is also true for people with a criminal mindset that look to game the system. It's generally a hard problem to create laws that encourage "good" heroes and discourage "bad" ones.
Because execution is often the difference between success and failure. There was a social network before Facebook. Actually there were several. MySpace comes to mind as the biggest. Even without Facebook, MySpace was on the way out. The difference? Execution.
I could give the same movie script to 10 different directors and fund the production of 10 different movies and I guarantee you that at least a few of those movies you won't even know if they used the same script. People interpret the same information differently and have different visions based on that information. One might make it a RomCom. Another might decide it's an action movie.
And if one of them makes one that people overwhelmingly prefer and it makes a billion dollars, would you suggest that they give the money back because there should only be so much success afforded to a single person when 10 different people all had the same script?
You seem to imply that there would obviously be an operating system without Gates so why should he become rich? Well, there were several different operating systems, some might even argue superior operating systems, but they failed as businesses.
Coming up with a new or revolutionary idea is hard. What's equally difficult is turning that into a successful business. Microsoft could have easily been a total flop had it hired the wrong people or made the wrong decisions. Google could have ended up as neat little experiment that never quite got off the ground had they not brought in the right people.
But that's not just tech, that's not just business, that's life.
careful here - for incremental advances this is true. There are still major developments and path dependencies that wouldn't have happened without key individuals (Turing, Einstein, etc).
Who does something when matters. If the leaders of large tech companies were personally committed to free, open, and interoperable communications, we might have avoided the walled-gardens that we're currently stuck in. Similarly, if the NSA won the clipper chip debate back in the 90's, precedent for cryptography would likely be very different that what we have today.
Robin Hood has more reality to me than grogenaut does. Funny how that works, considering that presumably you have a human body and Robin Hood never did.
"We’re invited to believe that a CEO can somehow ‘earn’ £10m per year, whereas a teacher ‘earns’ £25k per year. That’s only possible if you divorce the word ‘earn’ from any of its actual meaning. No one can actually work enough hours, or create enough value, to equate to £10m."
I think this is the essence of the recent debate about inequality. I think most people would not have a problem with those who are genuinely producing more getting more as well. Think back to school, did you ever complain about your grades if you knew some other kid had worked harder? Me neither. Of course there were times when it seemed arbitrary as well, seemingly having no relevance to quality.
It's a big problem creating a notion of fairness when you move on from school, where everyone is the same age, in the same class, doing the same homework. To create software, for instance, what do you typically find? There's people of various ages, some managing, some selling, some writing code, some doing testing. You need all of them to get the job done, and the job has some sort of value, however vaguely defined, that is greater than the sum of its parts. Nobody on the team could do all of the team's work as effectively as the team.
So then we have the problem of attribution. There's no real way to say what fraction of the value someone created. The only thing we really have is negotiating positions. If you're able to say "Give me half or I'm taking my ball" convincingly, your teammates will give you half. They'll be thinking about a few things mainly: whether you'll really leave if turned down, whether they think they can replace you, and what deal they can put forth to other potential teams if you turn out to be irreplaceable.
This will have some interesting effects. If you're already making a lot, you'll probably need a lot to want to participate. You have more savings in order to hold out for a better offer. CEO guy "genuinely" needs more pay because why wouldn't he just retire now? Janitor guy will take any offer, because he needs to be running to stand still. Actually a lot of people will be in that position, even though their labour is generally seen as useful, like teachers.
Which is all just a long way of saying that the negotiating process does not in itself take merit as an input.
> No one can actually work enough hours, or create enough value, to equate to £10m
It's a tiresome discussion. Why do we always bring up CEO compensations, but never Hollywood actors', professional athletes' or even painters' (or art traders' - https://en.wikipedia.org/wiki/No._5,_1948)?
Salaries don't need outside validation by people why have no idea what the job involves, but try to assign some "value" to it anyway. It's a free market and CEOs don't get hired if they have outrageous demands and there are better candidates available.
> Why do we always bring up CEO compensations, but never Hollywood actors',
Do you mean that whenever we discuss CEO remuneration we must also add a parenthetical remark to the effect that the discussion most likely also applies to a list of other categories of person?
If so then I think we can simply petition HN to add such a declaration to the terms and conditions of the web site, for instance:
- Any discussion of remuneration of any entity receiving more than 1MUSD per year is deemed to include all other categories of entity where at least one member of that category receives at least that amount.
If not then we must litter our discussions with pointless qualifications. Perhaps it doesn't matter, a lot of the comments, this one included, do not advance the discussion so their content doesn't matter.
I certainly bring up professional athlete salaries. Given that they produce absolutely nothing of value beyond a marketing opportunity, they're all overpaid for very little real work. It's not like they're curing cancer. Actors? Memorize some lines, and have lesser-paid minions tell you how they should be repeated.
All that's really happened is that a class of people have managed to market themselves to a section of the population - sports stars, actors, CEOs and politicians. They've made themselves superstars, and unfortunately, sufficient numbers of people believe in the legends that they can ask for whatever excess they like and get it.
If having Jack Nicholson in your movie guarantees at least $20 million more in box office revenue than someone nobody has ever heard of, they're creating value.
Likewise, a professional athlete plays on a sports team. That sports team generates millions of dollars a year in television contracts. Hundreds of people are employed both at the stadiums at which they play as well as at the television stations that air the games. Millions more are made from merchandising, jerseys, hats, etc from the sports team. Hundreds more are employed making and selling those products.
And yes, they also become marketing machines. Yet that marketing machine sells products and people are employed at those companies that make and sell those products.
The ripple-on effect of a super-star professional athlete like Michael Jordon or LeBron James generates wealth for tens of thousands of people.
> They've made themselves superstars, and unfortunately, sufficient numbers of people believe in the legends that they can ask for whatever excess they like and get it.
So, if that's true, they are compensated for excelling at self-marketing, i.e. for having a valuable (in our society) skill and not for others' perception of "created value"? I personally have no problems with that and don't find it objectionable.
While I think the are seriously overpaid, actors/athletes have to fight to stay relevant - they may fall out of favor at any time. CEOs make loads of money regardless of their performance. CEOs are rarely hired by open-market competitions, but rather by peer (read: boys' club) referral.
Once a CEO, always a CEO. Even if you blow up a few companies, you can always run for President (Carly Fiorina and many others)
> Which is all just a long way of saying that the negotiating process does not in itself take merit as an input.
I don't think this is the case. Why aren't you hiring the janitor to do the CEO's job? Are you sure there's no merit in the negotiating process? You even undermined your point right here:
> They'll be thinking about a few things mainly: whether you'll really leave if turned down, whether they think they can replace you, and what deal they can put forth to other potential teams if you turn out to be irreplaceable.
At least one of the reasons someone is difficult to replace is because they have rare talents, they're particularly good at what they do...they have merit.
You've got a point. I should have elaborated before going to bed.
There's a lot of noise surrounding measurements of skill. Witness the regular articles here about how to interview people.
The reason why CEOs make so much is related to this. Very few people appear to have the skill, but that is also why their wages are inflated in relation to what they ought to get. Because the penalty for hiring an incompetent seems so high, we want to make absolutely sure we get a "real" CEO. This means there are loads of people who could do the job, but due to a lack of credentials such as appropriate previous experience, those people cannot be hired. There's also the fact that you can point to the credentials if things do go wrong. "They hired him there, so it must be our business that's hard to fix." I think it's Tyler Cowen who calls this a star system. Similar dynamics occur in other high paid labour markets.
If you look at what a CEO does, you have to wonder why so many divisional managers are often passed over for an external candidate. After all they should know a fair bit about the company and have similar skills.
On a more software related note, look at job ads for programmers. Why do they specify one web framework when probably anyone who's used any of the major ones would probably be able to learn quite easily? This type of dynamic probably gets even stronger when we're talking about high powered exec jobs.
> a CEO can somehow ‘earn’ £10m per year, whereas a teacher ‘earns’ £25k per year. That’s only possible if you divorce the word ‘earn’ from any of its actual meaning
It's not even a real argument against a corporation, since corporate raiders and the like also say CEOs are overpaid.
At least CEOs have to get up and go to work every day - what does the word earnings have to do with heirs who get dividend checks every quarter from a company? They are as removed from the process of creating wealth as you can imagine.
> I think this is the essence of the recent debate about inequality. I think most people would not have a problem with those who are genuinely producing more getting more as well. Think back to school, did you ever complain about your grades if you knew some other kid had worked harder? Me neither. Of course there were times when it seemed arbitrary as well, seemingly having no relevance to quality. It's a big problem creating a notion of fairness when you move on from school, where everyone is the same age, in the same class, doing the same homework.
> Think back to school, did you ever complain about your grades if you knew some other kid had worked harder? Me neither.
Not personally, but I sure do remember jealousy from people who didn't -- want to -- work as hard or thought they didn't have "enough natural talent" to be like them.
I don't think it's too far off to say human mental models transcend class and that a portion of those who rally against inequality (because they are on the victimized end) are part of the group I described above.
As for how this applies to the discussion? I cannot think of anything. I just think it's important to remember human behaviour isn't fair, rational, or black-and-white (which on the surface flies against the "widespread mental model" claim).
Another way to think about it is to see all these platforms as markets.
Facebook is a people market. Spotify is a music market. Airbnb a hotel market. Uber a taxi market Amazon and eBay... Well, literally markets, right? And so on.
Markets obviously do create wealth, as a lubricant for trade. It's a meta-level of the economy, just like money is a meta-good that makes bartering actual goods and services more efficient.
So saying that's it's all "rentier" without creating any wealth might be selling them short a bit.
Where I'm troubled is that they're not free markets, in any sense of the word. They are privately owned, and the owners try to control their markets for the sake of their own profit. That's where things get problematic, I'd say, especially when there is a monopoly.
Nor is it created at the bottom, where it is spent or destroyed. It is created in the middle, by the middle class.
The middle class is the class that feeds the unproductive classes at both the top and the bottom. And the unproductive have formed a political alliance where the bottom votes for the top in exchange for handouts, all paid for by the middle.
> An increase of $1 billion in SNAP expenditures is estimated to increase economic activity (GDP) by $1.79 billion. In other words, every $5 in new SNAP benefits generates as much as $9 of economic activity.
"2) there's a natural limit - there's only so much food a family needs"
There's also a point where a family may demand more food but providing them with it actually harms society. The obesity epidemic is the biggest health crisis this country has ever faced and when 40% of SNAP recipients are obese (compared to ~32% of nonrecipients), we're basically paying to sentence these people to a litany of expensive, chronic medical issues. Of course, merely reducing benefits does nothing to solve this and harms the 60% of recipients who are at a healthy weight, I'm just pointing out that the natural limit of demand is far beyond the optimal level of supply for a program meant to provide a net benefit to society.
That doesn't suggest that the middle class is consuming and the lower classes are paying. The cited median house of $150k isn't owned nor are taxes paid for by the lower class.
The middle class gets taxed as much or more than the lower and they put in more due to simple economics.
There's a bracket in many countries (which I'm in) where you're taxed the maximum amount on your earnings, but still don't have enough to afford an accountant to find some loop holes for you.
Actually, the idea that government revenues consist solely of taxes is pretty much a middle class conception. The reason I mentioned Ferguson was that the DoJ report laid out how law enforcement and the legal system are used as revenue generators (in the case of Ferguson in an extremely racist way, but the point holds even in jurisdictions that aren't as racist). And in case you thought Ferguson got fixed: the police have been curtailed, but revenue generation has moved to building code violations.
I think it sad that there is only one word for wealth. It does not distinguish how a person attained that wealth. Was it inherited? Was the wealth created? Or was it taken at the expense of others? How society treats and taxes the wealthy should depend on how the wealth is attained.
The problem is in the definition of "created". A CEO of a company may say he "created" the wealth of the company through his decision to create a new gizmo. The engineers may say they created the wealth because they designed the gizmo. The workers who built the gizmo can also say the created the wealth in the most literal sense. Capitalism, technocracy, and socialism disagree on the importance of the three types of creation.
I believe in classical economics the terms are Production and Distribution, the latter being in reference of profit, or value-add.
I totally agree that the ambiguity you described is an issue. It's unfortunate that common political parlance isn't in a habit of defining its terms as a step 1a before proceeding in a discussion.
Of course it is hard to define how wealth is attained. But does that mean we should not try? What is worse? Giving up or finding a partially satisfactory solution? There may never exist a precise test for how wealth is created, but it would be better than nothing.
The problem is we don't tax wealth directly, only when it's transferred. A large portion of government spending is to protect the value of capital, but we fund it largely with taxes on incomes.
because that's one of the greatest incentives for people to create wealth. Why would I work and create wealth if I can't give it to my children or to charity that I created? Let's consume all of it.
A lot of notable scientists have given up all patent rights to their discoveries because they were motivated to help the world. And to be fair, be famous and respected too.
Depends what he/she does with the money. There are many things that government won't do and there is no market for it e.g. Polio vaccine. You have to have wealthy individuals to fund these ideas. Never mind that. You cannot design the system to force people to give you the money. They would move with the capital abroad. What do you do then? Start a war? Wealth is not a problem. Corruption and poverty are.
No, it doesn't. Justifying the choice is good after it turns out good as some sort of moral strategy. The choice (of how to use absurd wealth) is now subject to not-society. So any benefit is accidental, at best. It can easily be lit on fire and that is just as bad because society gets no say in it.
I agree wealth is not a problem, but corruption can be particularly devious in the hands of the wealthy. Wealthy people also have a greater benefit to the world than the average person when they are benevolent. I think both facts are the same with a wealthy government.
Even in our age most of the wealth is in the hands of people who don't own millions, and they're the ones that would really worry about inheritance. If you keep looking at the exceptions to explain the rules, you'll always end up with weird edge cases. The super rich don't need inheritance law, they can use their money to get what they want, even if it's illegal.
>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.
This is exactly why I don't buy the "rentier class" argument. Even the mega-wealthy families of the robber-baron era are not that well represented in these lists.
The other take on the wealth that is rarely discussed is the incentive that the ability to secure the lives of ones offspring provides - it is a very powerful drive. I suspect a large number of very talented individuals would accelerate their retirement if they were not able to pass their wealth on to their kids.
While I heavily rely on my skills/labor for income, even I would make very different choices if I had no hope of passing on at least something. Fair or not, it's a pretty primal instinct.
>>Even the mega-wealthy families of the robber-baron era are not that well represented in these lists.
May be because bulk of that wealth is locked in Trusts. And passed on through Trusts.
The Bezos, Zuckerberg's and Gates will leave behind Trusts which their descendants will inherit. You won't find their names in the richest person list in the next few decades. Their descendants will almost be as rich as the richest guy of their times. They will just be rich through a proxy.
I've actually had "you probably have a trust fund" thrown at me in college because I drove a sports car, but I worked 3 jobs to afford it and pay for education/rent/etc, so apologies if I'm overly skeptical about the trust fund claim.
I don't agree with Piketty, but do note that he's looking at things from a mainly European perspective. Europe probably has a lot more old money + there is still some (very) wealthy aristocracy around.
I in fact personally know a family that still owns land they somehow acquired in the 1700s. But they're not the billionaires or hundred millionaires that roam todays capitalistic system.
They're.. well off? I would call it FU money, but given they (sort of) have to pass it down the generations for forever, they definitely spend a lot less of it and enjoy it less.
It's usually created by one frugal couple not spending much of their income their entire life, and then passing on the savings. Money that isn't spent generates even more money passively.
Hard to tell if you are serious. My mother and father are going to leave me a bit of cash from their business earnings (I wish they wouldn't). That doesn't make me a Rothschild or a Hearst. Not to mention regal dynasties or modern tech entrepreneurs which are in another category entirely.
I suppose you could say that, although by US standards I'm far from "elite". Generally I think people should focus on maximizing their "life happiness". It's not my parents responsibility to scrimp and save to make my life better after they have passed. I would much prefer they spend their time and money enjoying their time here. I'm not suggesting they spend zero on me, I'm just saying they should not be unnecessarily frugal their entire life for my benefit. Obviously there are trade-offs. They have helped me in many ways (as parents do) which has contributed to my high quality of life. I'm suggesting that they enjoy the remainder of their lives as they wish.
While I can't speak for him, in my case it's because I want my predecessors to reap the benefits of their labours and spend their money on themselves before they die. As I say to them (and others), you only get one life and there are no prizes for checking out with money left in the bank.
I had this conversation with my parents recently as I share a similar view to the parent comment. My father has made a decent amount of money from his successful business, but by far the greatest proportion of their wealth is tied up in various property assets. They put this fortune down to good timing vs being "earned" in the same way as the business profits, and believe it should be something that future generations in the family benefit from. They travel internationally multiple times a year and assure me they will continue to enjoy the good life for as long as they can, but they're adamant when it comes to their plan to leave a meaningful estate for the kids and grandkids.
> Every sliver of fundamental technology in the iPhone, from the internet to batteries and from touchscreens to voice recognition, was invented by researchers on the government payroll.
This is bullshit, but it's very pernicious bullshit because while it only takes one person to pull this out of their ass, no one person can refute it. No one person can articulate where all the stuff in an iPhone came from; abstraction is one of the true marvels of technology today
We can certainly point out where various technologies were first discovered, and quite often it is academia (with a few exceptions like Bell Labs and Xerox PARC). But I think this is unfair to industry. What industry does is make usable compact products from these discoveries and one shouldn't denigrate this.
I remember Steve Mann from U Toronto demonstrating his augmented reality devices in the 1990s. They were very impressive for the time -- but they required him to wear a backpack of equipment and absurdly large goggles. We still aren't there yet, but Google Glass made his ideas into a semi-practical product.
Indeed this would be very interesting if it was true. Because many new technologies coming out of universities are patented, if Apple is using them as it's research arm, Apple is hopefully paying market price for the tech and hopefully that's a fair amount.
TL;DW The foundation for SV was laid during WWII by unrestrained spending (based on a huge amount of debt of course) by the US government on R&D. Private enterprise only came in once the foundation existed.
I'm generally libertarian leaning and expected to completely disagree with this. But he's got a point. Does anyone here really believe Facebook deserves to be a multi-billion dollar company? All of their success comes from the luck of being first (ish) and establishing a monopoly because of network effects. Someone might make a vastly better social network. But are you going to use that, or the one your friends and family use?
> Does anyone here really believe Facebook deserves to be a multi-billion dollar company?
Multi-billion what? Revenue? Yes, because they managed to monetize their traffic and keep it up despite fierce competition (attempts... by Google, for example). Market-cap? Yes because enough people who aren't typically extremely careless with their money invested in FB.
> All of their success comes from the luck of being first
>Yes, because they managed to monetize their traffic and keep it up despite fierce competition (attempts... by Google, for example).
They didn't have to do anything, that's the point. They have such strong network effects. They would have to completely fuck up to lose even a tiny fraction of their userbase.
But they do have to do something. In fact, they're constantly doing a whole bunch of somethings to keep people in their ecosystem.
Apps. Messenger. Instagram.
They didn't get that network by just being first(ish). They got it by continuously being the best of the imperfect options, and they can lose it just as easily.
>Does anyone here really believe Facebook deserves to be a multi-billion dollar company?
Not as soon as I find a link or invite to Marxbook, the non multi-billion dollar Facebook competitor all my friends and everyone I meet every day is on! Unfortunately - I don't know how - but somehow I can't seem to find a link. Do you need an invite? I've tried the obvious search[1] but I simply can't find it.
Since this is an anonymous forum where I won't face any repercussions, I am going to admit to you that in my heart of hearts I am beginning to question whether Marxism really works at all. In moments of weakness, I think the answer to the question
>Does Facebook deserve to be a multi-billion dollar company?
is, "obviously yes!". It would help if I could at least sign up to Marxbook. I feel like I'm not being a good member of the Proletariat. How does North Korea do it? Maybe we could try shutting off the electricity every night. It might not make Marxbook happen, but it would at least reduce Facebook usage. Capitalist pigs.
we're not talking about the economy, but rather a social network that everyone you know is on - all your friends, and all their friends, and everyone you meet.
How is that not going to be a billion dollar company? Like, what do you imagine here?
Email meets those criteria if you define social network loosely enough. I don't see any reason that something more Facebook-like couldn't also work in a decentralized manner.
How is that not going to be a billion dollar company?
Back then we had public utilities. In the Sixties they envisioned the Cloud to be run like a public utility. The scary thing is that this model has become entirely unimaginable to a whole generation.
Only half-kidding: they could pay a dividend to their content-creators rather than their investors. The company would be worth a lot less but the content-creators would be way happier (maybe).
See? Even if your totally out-there half-kidding, hypothetical, it's STILL a billion-dollar company. How would it not be? If the company you just described had everyone on it, it would be worth a billion. Or do you want it to be set up like a charity (like EFF?) Or run by the government?
I am having a lot of trouble imagining how your description is not worth a billion dollars, if everyone is on it. Even under the model you described.
Heh, good point. No doubt having the user base is valuable. But if, hypothetically speaking, 100% of the profits are distributed to users what do the investors have to gain? The profits can't be paid to investors or used to buy back shares. (There are still questions about growth and corporate voting rights not addressed here.)
you've just described a communist utopia. I think we can all agree that this wonderful pipe dream has not been proven to work at scale in practice. Theoretically it's a great idea of course, which is why a quarter of the world tried it.
"But such a revolution will require a wholly different narrative about the origins of our wealth. It will require ditching the old-fashioned faith in “solidarity” with a miserable underclass that deserves to be borne aloft on the market-level salaried shoulders of society’s strongest."
This has never happened in the past, but similar things have happened, always driven by violence. Can this happen without violence, I wonder?
"Given the heat of pushback on small tax increases, I wouldn't bet on this happening without chaos."
There's a big difference between pushback on increasing taxes from zero to five percent, or ten to fifteen percent ... and pushback on increases from 40 -> 42% or 45 -> 48%.
In the US, it is the latter that we are most frequently discussing and it is the latter that gets all of the pushback that you find so familiar.
If you think your chlorine level is too high in your pool, shouldn't you oppose all increases, no matter how minute ?
If your blood pressure is too high, shouldn't you be opposed to all increases, regardless of how small or how much "you can afford it" ?
Some people (like me) think that effective tax rates of roughly 50% (US, California, Marin County) are too high. I would then, ipso facto, be opposed to further increases and I am troubled by the fact that this is considered a definite political marker. It's not.
>Some people (like me) think that effective tax rates of roughly 50% (US, California, Marin County) are too high.
Wealthy people aren't getting taxed 50%. You're thinking of income taxes. Wealthy people don't make income. Genuinely wealthy people make their money from land they own and rent out and from stock they invest and hold.
"Wealthy people aren't getting taxed 50%. You're thinking of income taxes. Wealthy people don't make income."
Income tax is indeed what I am talking about and people do indeed get taxed at (roughly) 50%. You can use whatever term you'd like for those people.
The income limits for the top tax brackets are in the low six figures. Presumably you'd see those raised significantly to avoid these punitive rates on the "non wealthy" ?
If you own an apartment building and rent it out, you have to pay taxes on the income it provides.
The grocery store won't take stock certificates in payment for a gallon of milk. Instead, you have to sell it. As soon as you do, you are recognizing a capital gain and are taxed on it.
>If you own an apartment building and rent it out, you have to pay taxes on the income it provides.
Which is why the most common advice among long-term real estate owners is "buy more property".
Wealthy people don't have a higher need for milk (or any basic necessities) than the average person. So why would they need to sell any significant portion of their wealth? As someone said elsewhere in this thread, the problem is we don't tax wealth directly, only when it's transferred.
Sure, except the wealthy were doing just fine when taxes were significantly higher for them. They weren't suffering--they were still extremely wealthy, far more than everyone else.
For them to complain that their chlorine level is too high, when in the past it was twice as high or higher, and they were still living high on the hog? Sorry, don't care how they feel, tax the heck out of them.
"Sure, except the wealthy were doing just fine when taxes were significantly higher for them. They weren't suffering--they were still extremely wealthy, far more than everyone else."
Income taxes were never significantly higher than they are now in the United States.
You are thinking of the anti war profiteering tax brackets that were put into place after the entry into WW2. This was not a tax increase in the way you think of it and it was not designed to generate revenue or redistribute wealth - it was a patriotic act to ensure that nobody benefited financially from the prosecution of the war.
If you compare tax rates and use those as an anchor, you don't know what you're talking about.
Wealthy people (generally) are able to pay very little taxes on their capital gains if they structure things properly. Depending on the citizenship they hold and the country they live in, this can go from absolutely nothing (i.e. Monaco) to 25-35% (UK, Belgium, Spain, etc)
So you think both that rich people would be willing to give more money, and that rich people think they're already giving too much money? Or is there some fundamental difference between marginal tax systems and what OP was discussing?
Nah. Look where coup d'états happen, it's invariably in states without a strong democratic system, with a leader who has power to prevent fair elections.
> but across the spectrum virtually all agree that wealth is created primarily at the top.
Good lord, is this really true? I don't know about you people, but the basic pre-reqs for my undergrad had a single overview economics class where we covered among many other things the definitions of capitalism and profit and the idea that profit equals the difference between the sale price of a commodity and the cost of goods & labor used to produce it -- literally the definition of profit disagrees with the idea that wealth is created at the top, whatever that is even supposed to mean.
> When you think about it, it’s insane. We are forking over billions in taxes to help our brightest minds on and up the corporate ladder so they can learn how to score ever more outrageous handouts.
There's a lot about the world that gets completely insane if you think too much about it. Cars are insane. Jobs are insane. Politics and money are insane.
We have to have better options for smart people than highly compensated and interesting work at Facebook and Google. How do we create better options? I don't think pointing it out will cause better options to materialize.
> Yet it doesn’t have to be this way. Tollgates can be torn down, financial products can be banned, tax havens dismantled, lobbies tamed, and patents rejected. Higher taxes on the ultra-rich can make rentierism less attractive, precisely because society’s biggest freeloaders are at the very top of the pyramid. And we can more fairly distribute our earnings on land, oil, and innovation through a system of, say, employee shares, or a universal basic income.
> But such a revolution will require a wholly different narrative about the origins of our wealth. It will require ditching the old-fashioned faith in “solidarity” with a miserable underclass that deserves to be borne aloft on the market-level salaried shoulders of society’s strongest. All we need to do is to give real hard-working people what they deserve.
OH! That's all we need to do, eh? It's so easy! :)
It's not the first time this has been suggested. There are even names for this. And it sounds great. But the forces keeping our system the way it is are stronger than this. The narratives we need about the origins of wealth already exist, and they're not strong enough to turn the tide. I don't know what is strong enough to turn the tide.
This article seems like a classic case of theoretical discussion with little to no practical significance.
"In reality, it is precisely the other way around. In reality, it is the waste collectors, the nurses, and the cleaners whose shoulders are supporting the apex of the pyramid. They are the true mechanism of social solidarity."
Jobs such as waste collection will be completely automated away in the next decade. I suppose machines then will be the true mechanism of "social solidarity"?
"But there is also a second way to make money. That’s the rentier way: by leveraging control over something that already exists, such as land, knowledge, or money, to increase your wealth. You produce nothing, yet profit nonetheless. By definition, the rentier makes his living at others’ expense, using his power to claim economic benefit."
It seems like the author believes that any gain to one group can only happen at the expense of another. Yet we know this to be false - the pie can and does get bigger.
"revealed that much of the financial sector has become downright parasitic. How instead of creating wealth, they gobble it up whole."
Agree, but curious to understand which industry the author doesn't define as parasitic? All companies want to expand and grow relentlessly, that's just the nature of capitalism. Cable/Telecom? Oil and gas? High Tech? All of them have become "parasitic" if that's how the author wants to define it.
"Higher taxes on the ultra-rich can make rentierism less attractive, precisely because society’s biggest freeloaders are at the very top of the pyramid. And we can more fairly distribute our earnings on land, oil, and innovation through a system of, say, employee shares, or a universal basic income."
Wrong. Higher taxes, though welcome, will not be the solution. Nor will universal basic income. How does one not understand that with the rise of automation, the rich are about to get so much richer, no matter how much you plan on taxing them. And basic income, though beneficial, won't fix class inequality either, in fact it might just exacerbate it.
Let's talk about something the author fails to even mention: Education. Class inequality is fixed by education equality. Period. End of story. The rich in the USA have access to far better education, and THAT is the true source of the rising inequality.
The shocking level of economic ignorance of the author shows how utterly irresponsible and demagogic the Guardian is. This is rank sensationalism at the expense of public's correct perception of the world.
To call earning passive income on assets one owns "rentier" earning of income is to show unquestioned acceptance of socialist assumptions about the right to property, to ignore the value the person's assets contribute, and to totally neglect the role that delayed consumption (aka saving) and investment analysis, both components of investing and acquiring assets, have in wealth generation.
This is the quack economics the article is promoting:
>To understand why, we need to recognise that there are two ways of making money. The first is what most of us do: work. That means tapping into our knowledge and know-how (our “human capital” in economic terms) to create something new, whether that’s a takeout app, a wedding cake, a stylish updo, or a perfectly poured pint. To work is to create. Ergo, to work is to create new wealth.
>But there is also a second way to make money. That’s the rentier way: by leveraging control over something that already exists, such as land, knowledge, or money, to increase your wealth. You produce nothing, yet profit nonetheless. By definition, the rentier makes his living at others’ expense, using his power to claim economic benefit.
I'm not going to bother dissecting the logical fallacies and projection oozing from your post. Instead I'll point out the factual inaccuracy: The author does not provide a "one-idea panacea". He uses a single over-arching idea (rent) and shows the subtle ways in which it pervades our society and economy. He then concludes with a laundry list of possible solutions (the "panacea") and alludes to even more. The author is under no illusion that this is a simple problem to solve. The illusion appears to be your own.
Please don't pile more fuel on an already well-beaten, general ideological flamewar. The comment you're replying to is already flagged dead, a clear indication that this isn't a thread of conversation worth pursuing on HN.
There is nothing "communist" about the article. It is a critique of the flaws of our existing crony capitalist economies and how the real "welfare" is provided mostly to the elite. It concludes not with some call to junk capitalism and have the state run everything, but instead with advice on modifications we could make to fix the flaws and allow capitalism to work a little more like we all believe it does.
I don't see anyone advocating or defending Stalinism or Maoism and going unchallenged here.
My personal leaning is towards Hayek-style classical liberalism, and whilst I see plenty of commentary here that's strongly to the left or right of that, I don't see anything tolerated that advocates enslaving or murdering anyone, and I find most commentary useful in better understanding and clarifying my own positions.
My healthy skepticism of viewpoints echoing 20th century authoritarianism is more than justified, considering that in many countries that authoritarianism has continued into the 21st century.
In 2017 there are still military threats from socialist dictatorships directed towards capitalist democracies.
Hilarious!!! To learn more about how socialism is perfect, please buy Rutger B.. (the author) book off Amazon, a "rentier" by the author's own admission. And like good mind washed sheep, buy the book in huge droves to propel the author into "rentier-ship" accelerating a vicious cycle of the author curbing out books demonizing the very thing the he relies on to mind wash you into rentier slavery and socialism.
Thought the same. I'd recommend checking out "Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer" by Dean Baker instead.
The other big subsidy program for lenders is borrowing money from the Fed at low rates which can then be lent at much higher commercial rates. That's the welfare state for banks.
It doesn't have to be that way. Japan and China inject money into the economy by building, and sometimes overbuilding, publicly funded infrastructure. The banking system plays a lesser role in economic stimulation. This has its advantages; usually the infrastructure is good for something.