Where do people put the riches-line?

by Ingrid Robeyns on January 6, 2018

I’ve written here before about the research I’ve been developing on ‘limitarianism’ – the view that we put upper limits or caps on how much of some valuable resource people can have or use. One thing that struck me when giving talks about limitarianism of financial resources/wealth, is that there’s always someone in the audience shouting: “Give me a number!” If the claim is that there should be an upper limit to how much income and wealth someone can have, people want to know what those limits are. Also, I’ve noted that whether or not someone finds the financial limitarian view plausible depends, among other things, on where exactly that ceiling would be put.

One question one could ask, is whether within a political community, there is something of a shared view (or dominant view), of where that ceiling should be (assuming people hold that there should be such a ceiling in the first place, obviously). So I decided to team up with a colleague from economic sociology who has ample experience with conducting surveys, and try to measure, among the Dutch population, whether they hold the view that there should be an upper limit to wealth, and if so, where they would put the cut-off line between ‘rich’ and ‘extremely rich’. Is there a level of material affluence at which we find that people are having not just a lot, but too much?

In the coming months, we will conduct a survey on where (if anywhere) the Dutch population puts that riches line. But while preparing for that empirical study, I have not been able to find any other studies that have measured this, which is in striking contrast to the vast empirical literature on poverty lines. This makes the construction of our survey rather tricky, since we have very little to build on. Still, we’ll give it a try and even if we find only negative results (such us: there is no minimally coherent view among the Dutch population on the riches-line at all), then that’s a finding too.

We’ll have a survey in three parts. The first part gives the respondents descriptions of the standards of living of 10 households, by giving them information on the type of accommodation, whether or not they have a second (holiday) house, number and types of cars, number and types of holidays, and total financial value of savings. We then ask to categorise them as ‘having just enough’, ‘having a reasonable standard of living’, ‘having a good standard of living’, ‘being rich’, ‘being very rich’.
[NB1: for those of you understanding Dutch, the labels we’ll use are ‘net genoeg’, ‘redelijk’, ‘prima’, ‘rijk’, and ‘zeer rijk’].
[NB2: I’m not sure yet whether that term ‘very rich’ should be replaced by ‘extremely rich’, something to be discussed and decided over the next days and weeks.]

It will be interesting to see to what extent respondents with different demographic characteristics put those ten fictitious households in the same categories (one hypothesis is that the respondent’s household income level is a determinant of the categories one chooses: the higher your own income, the higher you put the riches line).

The second part of the survey will present to the respondents a list of statements on inequality and especially the top of the income/wealth distribution. Respondents are asked whether they (strongly) agree, neither agree nor disagree, or (strongly) disagree, with those statements. For example, I want to give them the statement: ‘It is not at all a problem if someone is extremely rich, as long as they earned their money in a legal and honest way, and properly paid their taxes” or ” The richest man in the world, Jeff Bezos (the boss of Amazon), has an estimated fortune of 98.000.000.0000 dollar (98 billion dollars). It is absurd that one person owns so much”.

I’m right now finetuning the questions from the second part, and suggestions are most welcome. I’m contemplating to also include some questions on inheritance taxation and basic income, since these are on the political agenda in the Netherlands right now and inheritance taxation is very closely related to the question of intertemporal inequalities.

The third part will contain about 5 questions with open answers, where we ask whether respondents believe there should be a maximum wage (if yes, how much)—and the same for maximal after-taxation annual income, maximal amount of liquid savings, and maximal amount of total wealth (including the financial value of art collections, real estate, companies, etc.). I’ve been thinking, over the last days, that perhaps we should also add an open question on the top marginal income tax rate, and/or open questions on other tax rates. And we will also ask whether, within one company/orangisation, they think there should be an upper ratio between the median wage and the highest wage.

Comments welcome – and if all goes according to plan, you will be (among) the first to hear about the results sometime later this year.

{ 125 comments }

1

Brad DeLong 01.06.18 at 2:01 pm

People in general have limited imaginations. Relatively few think that more than three times their current standard of living is not almost completely wasted and pointless, and should be redirected to other purposes than private consumption…

2

Adam Roberts 01.06.18 at 2:07 pm

It is absurd that one person owes so much‘ …. ‘owns’?

3

SamChevre 01.06.18 at 2:10 pm

This looks like an interesting survey.

One suggestion for the description of households: I would incline to use a description of “financial savings” that was something like “this household could maintain their standard of living for X long on savings, pension income, etc” rather than a dollar value.

I would also incline to include an age component in the household description.

Here’s my three examples of households: I expect that people will consider them very different levels of wealth.

All three households own a small house in an average neighborhood. All three have taken a “typical” holiday (I don’t know what that is in the Netherlands) in the last year. All three have a net value of savings, second homes, and npv of earned government benefits and pension of about $5 million. (I’m basing this on American numbers; the NPV of Social Security benefit at age 65 for a full-time worker is about $5 million.)

However–one is a 21-year-old, with a $5 million dollar trust fund. His parents bought him the house to live in while attending university. He expects to get a job that pays an income in the top 10%.

One is a a 50-year-old couple with two children, making about $100,000 a year. They are expecting both children to go to college. They have about $500,000 in total savings, and expect to spend $400,000 of that on college costs for the children. Both of them expect to receive a pension about equal to their Social Security income at age 65.

On is a 70-year-old couple, who are retired; they own their house, receive Social Security, and have about $20,000 in savings.

4

Lynne 01.06.18 at 2:18 pm

Ingrid, what a great idea for a survey. I will be very interested in the results. A couple of (strictly layperson) thoughts:

I liked the Jeff Bezos question above rather than the vaguer formulation.

Also, the older I get the more concerned with financial security, so the question of a pension looms large. Not sure how that would be reflected in your survey but unless The Netherlands has universal ample pensions it might be a factor among your respondents.

5

alfredlordbleep 01.06.18 at 2:39 pm

As general background there is the unique book by political philosophers, Murphy and Nagel, The Myth of Ownership—Taxes and Justice Oxford 2002

6

Ebenezer Scrooge 01.06.18 at 3:00 pm

You might get something interesting if you ask respondents about the way that rich people acquired their wealth/income. Should there be a wealth/income limit on entertainers and athletes? Entrepreneurs? Corporate bureaucrats (or CEOs?) Salesmen, or others compensated by a commission? Lottery winners? Inheritors? Ordinary schlubs who put €100K into their son’s friend’s startup when it was still operating from a bedroom?

7

Karen Wieckert 01.06.18 at 3:08 pm

Interesting.

You did not mention any questions about what to do with excess if there is a limit. Where does it go, for what purposes, overseen by whom, etc.

8

SamChevre 01.06.18 at 3:22 pm

I made a mistake in my math above.

All the $5 million values should be $0.5 million–$500,000.

The reason I think pensions need to be included: compare two 65-year-olds.

One has a lifetime pension of $40,000 annually; the other has $200,000 in savings. The first is significantly better off than the second.

9

john burke 01.06.18 at 3:31 pm

This seems to me a continuation of the concept I first encountered in the work of E.P. Thompson: “the moral economy of the crowd.” Thompson and others examined the way ideas like “the honest loaf” and “a fair day’s pay” underwrote popular protests in 18th century France and 19th century England, among other contexts. I don’t recall much detail about just where those protests fixed their limits, but there was general agreement that such limits existed, and something like consensus about what they might be.

10

bruce wilder 01.06.18 at 4:12 pm

I suppose it matters what model one has in one’s head of the economy: is this resource fixed, fungible, produced, durable, a factor or a good, socially embedded, shared, earned, extracted (physically, socially), depleted by consumption, enhanced by consumption, common, a means of public good, a means of private good, embedded in a network, managed, etc.

I have a strong conviction that constraints are appropriate, to limit waste and pathological social possibilities. I would impose usury laws, which is a constraint on the way wealth is used and shared. I would constrain all energy use. I am skeptical of the social value of allowing hierarchies of great size and scope (which create nodes where a few command vast resources). Strangely, though, I am not much inclined to judge someone else’s standard of living or patterns of private consumption.

11

Waiting for Godot 01.06.18 at 5:51 pm

It astounds me that we argue about what limits to put on accumulation of wealth when we should be debating guaranteed income floors paid for by a progressive income tax. The only way capitalism can work is for it to be regulated by a vigorous democracy based on one person one vote within a strong federal system that encourages local and regional innovation. The real debate should be about how the hell we get there from a completely dysfunctional authoritarian political system.

12

Glen Tomkins 01.06.18 at 5:59 pm

It seems to me that the standard of living part of the survey doesn’t get at the real issue with the concentration of wealth. I don’t think that issue is that the wealthy can consume too much more than the rest of us. It’s that extreme wealth is accumulated as a means of power.

At the low end of the income spectrum, people don’t have enough to provide for bare needs. As they go gradually higher in income, they can provide for bare needs, then have the freedom to meet needs with better quality goods and services. Then they can add on pure luxuries, which can also grade upward in quality and expense, and they can also start accumulating wealth to pay for deferred consumption, provide for their retirement. At the end of this line is the accumulation of wealth as deferred consumption for the next generation, the passing on of wealth to one’s heirs to allow them to continue consuming until they can start earning their own income.

After that level of income and wealth, we leave behind consumption, present or deferred, and further accumulation is empire-building. There is a limit to how much you can possibly spend per person, how much resources per person can be consumed — no matter how extravagant the lifestyle. Some of the super-wealthy at least, may have very extravagant lifestyles indeed, but the cost of the most extravagant level of consumption imaginable is still budget dust at that level of wealth and income. What the super-wealthy do with their wealth is buy politicians and think tanks, and through them buy public policy to distort the economy even further to favor rent collection so their empires can grow without limit. They finance institutions in ways that insure that their descendants unto the nth generation will remain in control of society forever.

The point is, that if your survey focuses on differences in consumption levels, you will predictably find a lot more sympathy for letting the wealthy have a lot more than an equal share, than if you frame the issue as one of wealth used to take power for oneself and for an incipient aristocracy of inherited wealth. It seems plausible to most people that a person who invents or develops/makes/markets cool stuff that all of us enjoy (or hope to enjoy) should get a higher level of consumption as reward and encouragement, certainly as long as the rest of us have at least our bare needs met.

The first part of your survey, at least in this broad-brush description, seems to leave people in that universe of consideration, that we’re just considering varying levels of consumption. The total value of savings is an item in the direction of bringing in the empire-building and aristocracy-of-inherited-wealth formation that people are much less likely to favor, but that seems pretty abstract, a mere number, compared to concrete things mentioned that are consumable. Most of us aren’t in a position to think of money in terms of building an empire or making our descendants rulers by birth, but we all are consumers, and can relate to consumables.

13

Jeff Lowery 01.06.18 at 7:01 pm

When talking about upper limits in dollar amounts, I think the issue you are going to hit up against is that people are really bad and grasping magnitude.

A person making $50,000 a year would be overwhelmed if you increased his salary one order of magnitude to $500K/yr. Raise it again, to $5 million, and he would consider himself rich. At $50 million, it would register as maybe “filthy” rich. Beyond that, though, and it is just more of the same. It just not comprehensible.

People who have $100 million are earning (conservatively) $2-4 million in interest alone. That is more than most people could imagine spending per year.

14

Cranky Observer 01.06.18 at 7:13 pm

I worked for an industrial manufacturing firm that was quite successful both in terms of profitability and innovation for ~125 years. From the point where the founder cashed out (and promptly drank himself to death enjoying the Paris high life) until 1990 the ratio in pay of the median mid-career employee to the President (no CEO in those days) was about 1:10. Say in 1980 dollars, $40,000/year for a mid-career engineer, accountant, or senior manufacturing worker; $175,000/year for a VP (of whom there were a reasonable number), and $400,000/year for the President. Holding the president’s office of that firm was a highly respected job locally, regionally, and in the industry, and when summoned to testify before Congress or high-level Federal agencies his words were taken seriously. There were two presidents during my time there and both lived in pretty darn decent neighborhoods and wore nice suits; their children were known to attend the region’s best schools (one religious; one public). There was no shortage of desire among the groundlings to work hard (“strive” is the current term I guess) to be next to hold the job and hope of doing so kept many a nose to the grindstone on the factory floor, lab bench, and account books.

Last time I looked at the financials of that firm the ratio was around 1:333: $60,000 for a mid-career engineer; $20 million/year _base_ salary for the CEO. They haven’t accomplished much of anything technologically in the 21st century and now seem to be mostly concerned with acquiring/divesting and similar useless financialization games.

After watching that firm and other like it for almost 40 years I personally came to two conclusions: (1) some amount of differential compensation is useful to keep people working at higher levels of their potential (although today I would add, as long as there is a strong safety net (2) there is no reason for that differential compensation to exceed a 1:10 ratio and bad things tend to happen when it does. So income – both ‘earned’ and ‘investment’ – should be taxed away above $600,000 US in current dollars. As it was from 1940-1980.

That’s my 0.02. I’m sure I am wrong though.

15

bob mcmanus 01.06.18 at 7:24 pm

Strangely, though, I am not much inclined to judge someone else’s standard of living or patterns of private consumption.

Strange indeed. As the primary means of reproducing the immanent hierarchies and hegemonies, I don’t think competitive consumption at any socio-economic level should ever be admired or approved, even though it is, like racism or patriarchy, the water the sharks and guppies swim in.

16

Lord 01.06.18 at 7:27 pm

Difficult questions since it is not passive ownership that is a problem but use of it as power to control and extract rents. With ownership comes entitlement, though even with limited ownership, control and power still exist even without much income. Most think in terms of income and equate income and wealth because they are both measured in $ while they are very different with wealth only amounting to a 25th (4%) return. It can however last beyond a lifetime.

17

Jwl 01.06.18 at 7:39 pm

SamChevre,

I think your example of a 50 year old couple with $500,000 saved on an income of $100,000/year is unlikely. This is in addition to whatever retirement savings they have? I suspect the number of people with that level of savings with that combined income is close to the null set.

18

Ingrid Robeyns 01.06.18 at 8:33 pm

Thanks, Adam Roberts @2, I fixed the typo.

Many interesting thoughts – thanks! A few further thoughts:

in general, our intuitions on wealth limits and extreme inequality are most likely shaped by (a) the country we live in, (b) the economic ideology that is dominant in the society in which we grew up and live. I worry about inequalities in the Netherlands, but it is nothing compared with inequalities in the US. Just one fact to illustrate: the wealth of the richest Dutch person, Charlene de Carvalho-Heineken, is estimated to be 12,5 billion Euro. The tenth richest Dutch person: 1,8 billion Euro. Number 100: 300 million Euro. So these numbers are small when compared to the top 100 richest people in the US. They can buy up some public goods, like green areas or radiostations, but they can’t take over the country. Also: many european countries have strict electoral campaign financing legislation, which makes it hard for the superrich to take over politics/democratic institutions.

I suspect that the survey as outline above will resonate more with those who have been living in solid welfare states/mixed economies with sufficient guarantees that money can’t buy politics (at least, not in a systematic, totally eroding fashion – I do not doubt that there the haves have more to say in this country too than the have-nots, and among those haves are several international companies from Dutch origin, that threaten to move away if the fiscal regime is not sufficiently beneficial to them).

@14 – Cranky observer: why do you think you would be wrong? I share that view too, and I don’t think I am wrong :)
(though ideally I would put the limit lower but that would only be feasible if we close the international loopholes, which I don’t see happening soon, except during/after WWIII).

19

Matt 01.06.18 at 9:05 pm

I fully endorse Glen Tomkins @12 and Lord @ 16. I’m not worried that billionaires are going to eat orders of magnitude more food or wear orders of magnitude more clothing than the rest of us, thereby leaving us hungry and bare. Their personal consumption, great though it may be per capita, barely registers on the macro scale. I’m concerned that accumulations of wealth represent accumulations of power, and I am wary of what great power may do if not sufficiently checked. I don’t mean this in the sense of moral disapproval (though moral disapproval of great wealth is fine too), more like “I am wary of high power machinery without safety interlocks.”

20

nastywoman 01.06.18 at 9:28 pm

”I suspect that the survey as outline above will resonate more with those who have been living in solid welfare states/mixed economies with sufficient guarantees that money can’t buy politics”

Agreed – for anybody who is used to live in both worlds -(US and Europe) it starts with the question in which world do ”people” really ask: ”Where do people put the riches-line?”

As a member of ”the cult of less” -(with the exception of driving very, very fast on Autobahns) I loved to irritate my US relatives with this question they never asked…

21

nastywoman 01.06.18 at 9:39 pm

– and by the way – one of the most interesting answers – to one of my typical ”romantic” questions concerning this issue – I once got from a (black) friend of my dad who told me -(sitting in a very ”rich” looking hotel lobby) WE -(and with ”we” he meant his ”sisters and brothers”) – don’t want to put any… ”limits on the bling” – WE want ”the bling” – and it might have been a ”cynical statement” –
or NOT?

22

J-D 01.06.18 at 10:21 pm

Will you be specifying the number of people in a household? My ideas about a reasonable number of things like cars, bedrooms, and so on would be influenced by that, and I expect so would most people’s.

23

musical mountaineer 01.06.18 at 10:36 pm

In what sense do rich people “have” their riches?

If Mr. Rich Guy keeps his money in the bank, that means other people (the bank/the bank’s customers), not him, are using his money. If Mr. Rich Guy owns stocks, that means he’s a capital investor in some business that employs and transacts with other people, so he’s not really the one using his money there, either. If Mr. Rich Guy buys bonds, the government gets to use his money. If Mr. Rich Guy converts all his wealth into gold and hoards it, he is actually a poor man (no standard of living, no purchasing power) who has raised the unit value of gold for everybody else. If Mr. Rich Guy invests more than modestly in expensive toys, the enjoyment of each must be diminished because one Guy doesn’t have enough time to fully enjoy each and every one of his toys; the same goes for other indulgences; at some point Mr. Rich Guy benefits less from his indulgences than do the people he employs. If Mr. Rich Guy owns a fancy hotel, he can’t live in all the rooms and enjoy all their amenities and eat a dozen courses of every item on the restaurant menu every night; other people will do that for him. If Mr. Rich Guy is worth a million times what Mr. Poor Guy is worth, Mr. Rich Guy still cannot have a million times as much fun or live a million times longer.

Fun Fact: When you take away Mr. Rich Guy’s money, you take away everybody’s money.

Sometimes you have to impose taxes, like to build roads and whatnot. Sometimes you don’t have to do impose taxes, but you do anyway. For instance, there’s this whole managerial class in the nation’s capital and throughout the school system: highly-compensated by the generous taxpayers of the USA, this class has manifestly failed its various missions; yet they expect (and this in a rather self-righteous way) never to be held accountable. We might want to tax that. Makes less of it, you know.

24

Omega Centauri 01.06.18 at 10:56 pm

I think that apparent intent would also strongly shape the results. On the one extreme would be a man who would like to be known for providing a full scholarship to every kid who graduates high school in his home town with at least a B average, versus another man, who wants to cruise in a super-yacht equipped with a retinue of the best women that money can buy. Clearly we would be happy to accommodate the first person, and the second, not so much.

So for now lets stay with the philanthropy theme. Most of us would be reluctant to limit the incomes of people whose goal was to establish a philanthropic legacy. Yet what is philanthropy, but a means of shaping the future of the world in some manner. Well trying to influence politics is one means of doing that. For something obviously political most of us would want some pretty strong limits.

Personal consumption: When I was younger I was into mountain climbing, so my limit would have been to be able to climb the very “best” mountains/routes in the world, employing the very best guides money could buy. That would be pretty pricey. Now, what if we enabled space tourism, then this mythical unlimited younger me would want to climb the “best” mountains in the solar system, the price tag for which would be astronomical. My point is that even for personal consumption, if we were effectively unlimited for many the limits would be extremely high indeed.

25

kent 01.06.18 at 11:21 pm

So I’ve been running this through my head for way too long and it’s time to put it down in pixels. Hopefully someone will find it useful or interesting.

Narrator on film. “Here is a video showing the view from the base of the Empire State Building, looking up. I want you to convert your net worth at a rate of $1,000,000 = one foot. Let’s make a mark on the building at the height corresponding to that point.

So if you have $500,000 saved, your mark is 6 inches off the ground. Or if you have $3 million, you’re 3 feet off the ground. If you have about $80,000, you’re at one inch off the ground. Visualize yourself in front of the building, making the little mark on the building.

Question 1. Where is your mark, on that building, right now?

Question 2. If you worked every day, 24 hours a day, 7 days a week, starting today until the day you die at age 100, at your present salary, paying $0 in taxes — how much money could you earn, between now and the day you died? Make a mark on the building at that point.

Question 3. If you asked the richest people in the world to put marks on the building using the same scale, how high would those marks be?”

26

Dave OB 01.06.18 at 11:37 pm

It strikes me that, of those who will agree with the statement that begins: “It is not at all a problem that….”, some may be expressing the judgment that it is not even pro tanto bad whereas others may be expressing the judgment that, although it is pro tanto bad, it is fully compensated for, or excused, or whatever, by some other factor (and so is in that different sense ‘not at all a problem’). I don’t know to what extent you want to track people’s all-things-considered vs their pro tanto judgments, but to the extent that it’s the latter, I wonder if it’s worth rephrasing that statement somehow.

27

nastywoman 01.06.18 at 11:37 pm

”Fun Fact: When you take away Mr. Rich Guy’s money, you take away everybody’s money.”

But NOT when you take away his Lambo Urus – he only could ”own” BE-cause he had the 240 000 bucks to pay for the machine – and you for sure need to watch the ad for the Urus
(”WE MADE IT POSSIBLE”!!) – and then you could come to the ”Fun Fact” that somebody who has the (extra) dough – to pay for so much ”fun” has passed the line of being ”rich”?

28

engels 01.06.18 at 11:43 pm

I worked for an industrial manufacturing firm that was quite successful both in terms of profitability and innovation for ~125 years

Elixir of eternal youth?

29

William Meyer 01.06.18 at 11:43 pm

I would put a “ceiling” on family wealth at $100 million. It’s a lot lower than the current net worth of many people and families, but it will still clearly make a family “wealthy” in the sense of not having to worry about money ever again, assuming minimum prudence.

Placing a ceiling or cap on wealth at that level would seem to greatly undercut the ability to effectively subvert the political process in the fashion of such current Bond villain-types as the Koch brothers. And it is still a significant enough amount of money to allow ugly smart men and women to lure attractive mates, which is the biological underpinning of income and wealth inequality. So democracy is protected, and nobody really loses.

Somewhat off topic, but why isn’t there more discussion of the fact that the Koch brothers have accumulated political power to an extent hitherto unknown by private citizens in American history? Their decades-long, systemic and integrated efforts to gain leverage over the state and federal governments of the United States have succeeded in a way never before seen, to my knowledge. This is a threat that Americans have never encountered before, and I am surprised that there doesn’t seem to be a greater recognition of the unprecedented nature that it represents.

Kind of odd how much more imaginative and resourceful our great grandparents were in the Populist-Progressive eras when confronted with novel threats to democratic governance. We consider ourselves so well informed, and yet, we seem unable to pay attention long enough to deal with this rather ominous situation. The rightward movement of the Democratic Party seems to have truly hypnotized the American people to look only within the Overton window for political solutions.

30

J-D 01.06.18 at 11:44 pm

musical mountaineer

Fun Fact: When you take away Mr. Rich Guy’s money, you take away everybody’s money.

No justification has been presented for this assertion. Calling it a fact doesn’t make it a fact. In history, taxes have sometimes been raised and sometimes been lowered; what have been the consequences? it seems implausible in the extreme to suggest that every increase in taxes ever has resulted in universal impoverishment.

Evidently this is the kind of assertion that it pleases some people to believe; but I don’t know why.

31

Peter T 01.07.18 at 1:45 am

There’s a mental confusion here – the use of one set of words (riches/quantity of money/owns) to describe very different things. As musical mountaineer points out, a billionaire does not “own” the further reaches of his fortune in the same way that I own the money in my wallet. So are you asking people about where they put the transition point from having enough to live a lavish life (“should people have enough money to own a large yacht/private island/fifteen houses?) to having control via “ownership” of many other people’s lives? If the latter, is the issue the form of ownership or the form of control? The US decided to let people own as much as they can garner and then try to control the impacts, and is finding the latter difficult given the social and political resources bestowed by the former and the many opportunities for leverage in the US political system.

32

Kurt Schuler 01.07.18 at 3:14 am

An interesting line of research. I would be curious to know why people think (as in my experience they do) that it is justifiable to equalize wealth to some extent but not to equalize looks or intelligence. After all, most very rich people in Western countries have accumulated their wealth though years of voluntary commercial transactions with other people rather than through inheritance or theft, whereas beauty is almost all inherited and intelligence is to a large degree inherited. I can think of some arguments that might be made but would be curious whether people actually make them.

33

Collin Street 01.07.18 at 3:20 am

Will you be specifying the number of people in a household? My ideas about a reasonable number of things like cars, bedrooms, and so on would be influenced by that, and I expect so would most people’s.

We’re talking income, not lifestyle. An income cap will only be a problem for large families if it pushes their lifestyle below the minimum socially acceptable, and — if we assume for the sake of argument that costs vary linearly with the number of people in the household — this will only come into play for people:
+ who are at the income cap, and
+ whose household sizes are bigger than the multiplier between max and min incomes
Given that we’re talking about income gaps of around a factor of ten, I think tbh it’s an issue we can entirely ignore at this stage, maybe come back to it later.

34

Robespierre 01.07.18 at 4:54 am

#23:

The fact that rich people may not enjoy their money is no excuse – on the contrary, it’s an argument against them.

They still have it, and huge efforts are wasted trying to satisfy their wishes that could be better used elsewhere.

I don’t care how little that poor Mr Rich Guy enjoys the labour of the peopleserving him.

And don’t get me started on the poujadist second half of your comment.

35

nastywoman 01.07.18 at 6:58 am

– and indeed the funniest remark might be the comment ”that In what sense do rich people “have” their riches”? it reminds me on what (nice) ”frugal” Germans like to say when they try to teach their children to be… ”decent”.

”Geld macht nicht glücklich” (Money doesn’t make happiness) BUT as I have met so many ”happy” rich people in my life -(and a few very unhappy ones) I would go with the idea that ”an amount of dough which pays for everything one wants and thusly doesn’t make somebody unhappy” is where people put the line to riches – which I understand seems to be awfully subjective but there is always this other (silly) German saying -(already translated) –
”It’s the little things which makes the people happy”.

36

J-D 01.07.18 at 7:03 am

Kurt Schuler

After all, most very rich people in Western countries have accumulated their wealth though years of voluntary commercial transactions with other people rather than through inheritance or theft …

I am not sure this is true and would like to know why you are.

37

J-D 01.07.18 at 7:14 am

Collin Street

We’re talking income, not lifestyle.

It’s not clear who you mean by ‘we’. Ingrid Robeyns is absolutely explicit about how her survey design involves asking people to rate households on a five-point scale (‘having just enough’, ‘having a reasonable standard of living’, ‘having a good standard of living’, ‘being rich’, ‘being very rich’) based not on their income but on ‘descriptions of the standards of living’, an expression which is amplified in these words ‘information on the type of accommodation, whether or not they have a second (holiday) house, number and types of cars, number and types of holidays, and total financial value of savings’. I am confident that many people, not just me, if asked whether (say) nine bedrooms, four cars, and three bathrooms is typical of ‘being very rich’, ‘being rich’, ‘having a good standard of living’, ‘having a reasonable standard of living’, or ‘having just enough’ would want to know ‘for how many people?’ The answer if it’s ‘for just one person’ is likely to be different from the answer if it’s ‘for seven adults and ten children’.

38

John Quiggin 01.07.18 at 7:20 am

I’m a (roughly utilitarian) consequentialist rather than a limitarian, but the same kind of question arises, namely, at what point should you regard the social value of additional income to a particular individual as (effectively zero). In practical terms, that means, where should you set the marginal tax rate with the aim of maximizing revenue from the taxpayer in question (on most estimates, this rate will be 70 to 80 per cent). I’d go for three times median family income*, which is somewhere between* $200k and $250k in the US.

Spelling out the implications, the utilitarian position is neutral in incomes above the point at which marginal utility becomes negligibly small. So for people in this range, you set the tax rate at which the largest amount possible is redistributed to society as a whole, even if this means leaving some increased income to those with skills or assets highly valued by the market. I used to think this was what Rawls meant with his difference principle, but then I discovered he opposed progressive income taxes and gave up worrying about what he meant.

By contrast, limitarianism as I understand it suggests that incomes above the limit are positively bad, and that society should be willing to spend resources (that would otherwise go to the non-rich) to reduce incomes that are above the limit. I can see this in the case of those whose riches are such as to give them unreasonable political power, but not as a general principle.

* A little imprecise, but it looks as if I am the first person in the thread to offer a numerical answer.

** The three times number is the same as that mentioned by Brad @1, but I’m willing to apply it to the median household income rather than to my own

39

Brett 01.07.18 at 7:53 am

#29 William Meyer

I’m not sure how a wealth limit would work in practice. A lot of wealth (such as Bezos’) consists of either total ownership in a proprietorship/partnership, or ownership in the form of a stock. If the net value of someone’s ownership stake went above $100 million, would they have to sell it to someone until they’re back down to $100 million, or give it to the government? If it’s a partnership, do they have to subdivide the company further and bring on an additional partner or partners to get it back down?

Or would it just be a cap on what they could convert into income? As in, you could have a company worth $5 billion, but the amount you can convert to liquid income is only $100 million – otherwise it’s just paper value that you can’t sell or borrow against? Although that would raise its own issues . . . .

An income cap is much more feasible, although it could be difficult to police. Beyond about $5-10 million, all the income is just being cycled back into investment anyways, so capping it there wouldn’t materially hurt your average rich person’s living standards much. It’s actually really hard to spend $10 million/year on consumption unless you’re blowing your money on gambling, collectable stuff, or your zillionth yacht or car.

40

David Duffy 01.07.18 at 10:46 am

Eisenhauer (2008) tries to define upper class as “all members of the family can avoid employment if they want to” ie could live at the poverty line off interest. For the European setting, he reckons this as a net worth 31-40 x the median income. In the US setting with its poverty line, 2004 $1M would be enough – I wouldn’ t call that “rich”.

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Michael Sullivan 01.07.18 at 1:03 pm

I’m very much in line with John Quiggin’s commentary at 38. The real world economic case for maximized revenue comes *far* lower on the income/wealth scale than the case for an actual limit on income or wealth, which would require the extra wealth to not just be insufficiently useful to society, but to be a positive bad.

One great advantage of the maximized revenue program starting at an income level tied to some function of the income distribution (such as median income) is that the rich would then have a positive political interest in increasing the median income! The higher the median income is, the lower their taxes will be.

I’d actually like to see it tied not to the median, but perhaps instead to the poverty level, or something like the 25th percentile. So, something like 5-10 x 25th percentile income, rather than 3 x median income. (Also, I think 3 x median works out to 180k in the US, 4 x might be better if you like the 200-250k range).

The case against unchecked political power is the real one for a pure limit (100% income taxation or 4-7% wealth taxation over some threshold). But it’s not at all clear to me how a pure limit would be workable short of really draconian enforcement policies that could potentially restrict the freedoms of non-filthy-rich people or hurt the economy. Also leaving that aside, it is not clear to me how rich person’s extra *consumption* can hurt poor people except by raising prices. For most economic goods this is a non-issue as the rich are satiated by quantity at not much more than the poor, so they end up not competing for the same goods (rich people buy a lot of prime steak, poor people buy a lot of hamburger or lentils — rich people buy conspicuous positional goods like Rolexes, while poor people buy a cheap watch or happily go without.)

The big problems of rich person’s consumption in today’s economy (US at least) are in education and housing. Rich and upper middle class people bid up prices of “good” neighborhoods, and in the US at least under a “property tax pays for public education” regime, this means they buy better public schools for their children than poor people can afford (they cannot afford houses or apartments in communities with the best schools). It also exists at the college level, where the college “package” is typically designed to appeal to the sons and daughters of the top 10%, and where rich people meaningfully bid up the prices of the most respected institutions to where it becomes something of a gamble for a poor student who, unless they get a lot of scholarship help, must take out large loans that will potentially immiserate them if they fail to graduate, or find that their degree and skills are not marketable.

I think that for all of the problems save political capture, they are probably best solved not by restrictions on rich people and their transactions, but by simple money transfers. Use that maximized revenue to equalize public school funding and provide the kind of support for public universities that *used* to let people attend for quite reasonable tuition costs.

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Michael Sullivan 01.07.18 at 1:12 pm

Sam Chevre — your comment at 3 makes a lot more sense now that you clarify 500k instead of 5mil (social security is nowhere *near* that generous!), and I assume your trust fund baby has a 500k trust fund, rather than a 5million one.

I still think that your families 2 and 3 aren’t really at the same NPV without some very strange calculations. Also, you specifically suggest that the trust fund baby is destined or a top 10% income, I don’t think you even need to say that for them to be much better off than the other families in question. The simply fact of having that level of wealth earlier in life is enough — just not touching it (no more saving) would likely allow them to retire before 50 to a pretty comfortable standard of living.

I agree with what I infer as your general point though: wealth matters as well as income, and it’s extremely difficult (maybe impossible) to come up with a single function of wealth and income where we’re mostly going to agree that being higher on the resulting scale means you are better off.

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Michael Sullivan 01.07.18 at 1:21 pm

I really like what you are getting at here, Ingrid and I’ll be very interested in the results of the survey. I’m interested in how you’re planning to piece together and reconcile answers based on income vs. answers based on wealth, and to what degree you are going to try to tease out differences with families like Sam’s.

ISTR in one of your previous posts about limitarianism, your general proposal would be for a maximized revenue program above some “flourishing” level, rather than for pure limits, is that right? That makes it less important for me that you are finding out the difference between “very rich” and “absurdly rich”.

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Anonymous2 01.07.18 at 3:30 pm

I had a conversation with a taxi driver once who said he had given this issue a lot of thought and come to the conclusion that no one needs more than two million net worth.

On the basis that no one should have more than they need, there is your answer, based on the wisdom of the ordinary man.

45

Peter Belenky 01.07.18 at 4:38 pm

There’s a Jewish folk song in which a student asks the learned rabbis how an emperor enjoys some of the common pleasures of life. The rabbis, who have spent their lives immersed in sacred texts in an impoverished village in eastern Europe, respond: How he drinks tea? They pour hot water into a loaf of sugar and stir. How he eats potatoes? A soldier shoots a hot potato through a wall of butter into his mouth. How he sleeps at night? They throw him into a room full of feathers and stand outside calling, “Quiet! The emperor is sleeping!”

So there is comedy, but also a fallacy in asking the poor to estimate how much better are the lives of the rich. Items of consumption may be multiplied to absurd extremes, but the impact of inequality on the structure of society is ignored. Glen Tomkins is correct that the wealthy gain power to buy public discourse and politicians, to destroy unions, and to force nations to compete for their business. Yet unfair power is not the only destructive effect of unequal wealth. Distortion of output toward positional goods affects every class, probably imposing far greater disutility on those lower on the social scale than all of the billionaires’ yachts and mansions. If people were offered an economy in which they were more like their prosperous neighbors, that might have greater appeal than one in which only the emperors of commerce were deposed.

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musical mountaineer 01.07.18 at 4:59 pm

nastywoman:

But not when you take away his Lambo Urus…

Okay, so let’s stipulate that anyone rich enough to afford a Urus is too rich, and their money could be more profitably spent for the benefit of humanity. That may be true. But if we apply this as a norm, it means no more Lamborghinis and no more Lamborghini company, which in turn means no more Lamborghini technical innovation, knowledge and art which had previously been part of the property of humanity. Neither you nor I can put a price tag on that. Nobody can estimate the opportunity cost of this kind of intervention applied to all high-level, bleeding-edge consumption. My own intuition is that the opportunity cost would be very high.

J-D:

it seems implausible in the extreme to suggest that every increase in taxes ever has resulted in universal impoverishment.

It certainly does, and I would never urge such a strong form of the argument. I merely point out that taxation isn’t a tidy process which can nicely equalize everybody, without negative side effects or opportunity costs. Taxes are necessary, as I conceded before. But they are not efficient; their deleterious effects are almost impossible to gauge; and their benefits, for any but the most fundamental functions of the State, are invariably less than advertised. A subtle and complex thinker might see ways to redistribute wealth while minimizing collateral damage and avoiding wasteful spending. But the solution would be equally subtle and complex. A simple cap on people’s compensation or net worth seems a very blunt instrument indeed.

What’s the right approach, for instance, to a guy like Elon Musk? He’s very wealthy. He’s also a wizard at getting the government to purchase and/or subsidize his products. It seems kind of peculiar to cap his wealth accumulation, while shoveling money into his companies. So maybe the thing to do is cut off his subsidies. But either course could well mean that Musk wouldn’t bother to show up for work, or that his businesses would fail. If Musk’s activities are a net benefit to society (I don’t claim they are), then policy makers should be circumspect when they go tampering with any of Musk’s revenue streams.

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Tom West 01.07.18 at 5:05 pm

Kurt (32) that it is justifiable to equalize wealth to some extent but not to equalize looks or intelligence.

Simple enough.

1) I think most people are close to JQ (38) – they’re more interested in redistribution than equality per se. You can redistribute wealth, but you can only destroy looks or intelligence.

2) Money is the ultimate fungible easily measured metric. I don’t care how the money is actually made – it’s just the easiest thing to redistribute. If you have other talents, the only thing I care about is whether you leveraged them into something that I can redistribute.

I think you are confusing people’s innate consequentialism with the rhetoric of seeking justice. (And yes, it’s easy to do – a lot of people seem to feel the need to rationalize perfectly good consequentialism by making the people who should be highly taxed bad people.)

48

Layman 01.07.18 at 5:38 pm

“I had a conversation with a taxi driver once who said…”

Can it be? Has the Moustache of Seriousness joined our discussion, albeit anonymously?

49

musical mountaineer 01.07.18 at 5:48 pm

Here’s another notion:

Let’s say we cap individual net worth at $10 million, and annual income at $500K. Seems generous enough, right? It would put angel investors out of business.

Startups need cash, typically in increments of about two to ten million dollars. Angel investors need to be able to make many investments in this range, because the investments are at astronomical risk and the majority will fail. So an individual needs at minimum $100 million and an appetite for disaster, just to get in the game.

Maybe, if wealth/income caps were in place, some adventurous types would still want to play the angel game. They’d have to do it with much smaller investments. To get funding, a startup would have to complete ten times as many angel deals. No way can that happen; the institutional stress of securing even one angel deal is often more than enough to kill a startup.

Maybe wannabe angels could pool their wealth in a consortium so as to get a big enough pile of capital to play the angel game properly and give startups some chance of success. But then who does the due diligence and approves the deals? Either the decision must be made by someone who doesn’t have much skin in the game, or it must be worked out democratically within the consortium, with some way to share the burdens of due diligence and negotiation. I don’t think that can happen either.

So, cap net worth at $10 million, and you get no more startups. Established companies retain (and probably abuse) their positions forever: no more challengers. Innovative products and business models never see the light of day. Care to put a price tag on that?

50

CT Reader 01.07.18 at 6:14 pm

Matt @ 19 said:

“I’m not worried that billionaires are going to eat orders of magnitude more food or wear orders of magnitude more clothing than the rest of us, thereby leaving us hungry and bare. Their personal consumption, great though it may be per capita, barely registers on the macro scale. I’m concerned that accumulations of wealth represent accumulations of power, and I am wary of what great power may do if not sufficiently checked.”

This is well thought out and I agree with it.

I think the issue here is whether we “sufficiently check” great power at its root – by building robust and non-fragile political institutions or whether we “sufficiently check” the symptom – the wealth itself.

In considering an actual system – building a system and maintaining a system – I think it would be much more sustainable and scalable to spend the time and effort bolstering the political institutions to be non-fragile to wealth. If we spend our time and effort downstream, on the wealth itself, I think it will find a different, fungible way to squirrel through.

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nastywoman 01.07.18 at 7:15 pm

@46
”it means no more Lamborghinis and no more Lamborghini company,”

Not really – as a very clever Italian communist once said: Communism is when everybody drives a Ferrari – and let’s translate that to my beloved Lambo – there are some dudes I know who could by the whole production of all Uruses right now and hand them all out to their besty friends – and it hardly would register on their… let’s call it ”bottom-line” – so the secret seems to be entirely in the most – loving – effective – constructive and admirable distribution of what one can buy with the dough – and if somebody is rich enough to afford an Urus easily – and thusly being considered ”rich” why not make ME rich too – in the sense that he gives me an Urus as a present? – and then I also could have crossed the line to being ”rich”?

Capisce?

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nastywoman 01.07.18 at 7:25 pm

@49
– and about this notion of the ”investing angels” and that WE – or anybody else shouldn’t restrict financing?

Where are you living?

It got to be really ”tough” and ”difficult” to be – and to become a ”winner” in our ”homeland” – the’s what our current ”winners” say – sooo ”no free dough” and nooo free lunches – just start like one of these German -(engineering) Geniuses or we never will be able to become richer as they are in dominating the luxury machinery market!

Jawoll!
-(and do you know that some of the richest Germans used to drive the most simple VW in order that the question: Where do Germans put the riches-line never ever would see the light of Crooked Timber?)

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musical mountaineer 01.07.18 at 8:03 pm

Thanks for your comments, nastywoman.

54

bob mcmanus 01.07.18 at 8:16 pm

“See my new shoes, see my new smartphone, my leafblower, my widescreen, my Lambo, my mansion, my company, my politician, my colony, no new worlds to conquer.”
“See our library, our hospitals, our lightrail, our parks, our electoral turnout, our literacy, our daycare, our neighborhood tool bank, our Gini index.”

The social “limit to wealth” is the line between the collective’s and the individual’s, above the line is what we as a society can justly expropriate for social purposes, what we think is anti-social and destructive, what we claim as the commons. As a “line,” it can only develop envy and ressentiment on one side, arrogance and paranoia on the other.
This is inevitable as long as the argument goes along the path that “this much and no more” personal accumulation and consumption is admirable, and above that reprehensible.

The goal should rather be in the age of overpopulation and resource depletion, since this is the real argument anyway, how do we increase attitudes of sharing, collectivism, and willful self-dispossession.

55

Collin Street 01.07.18 at 8:29 pm

Startups need cash, typically in increments of about two to ten million dollars. Angel investors need to be able to make many investments in this range, because the investments are at astronomical risk and the majority will fail. So an individual needs at minimum $100 million and an appetite for disaster, just to get in the game.

Just to point out, our sample under study here is entirely unable to conceive of collective action approaches to money-raising: things have to be done by individuals or they can’t be done at all. And this is a supposedly-serious argument.

All “conservatism” is symptomatic of clinical cognitive impairment in the autism spectrum.

56

Bernard Yomtov 01.07.18 at 8:41 pm

@Peter Belenky,

Thanks for reminding me of that song.

57

J-D 01.07.18 at 9:06 pm

musical mountaineer

I merely point out that taxation isn’t a tidy process which can nicely equalize everybody, without negative side effects or opportunity costs.

I don’t understand how that’s supposed to be a relevant comment, since nobody asserted that taxation is a tidy process which can nicely equalise everybody (with or without negative side-effects or opportunity costs).

Taxes are necessary, as I conceded before. But they are not efficient; their deleterious effects are almost impossible to gauge; and their benefits, for any but the most fundamental functions of the State, are invariably less than advertised.

I perceive no justification for any of these assertions.

A subtle and complex thinker might see ways to redistribute wealth while minimizing collateral damage and avoiding wasteful spending. But the solution would be equally subtle and complex. A simple cap on people’s compensation or net worth seems a very blunt instrument indeed.

This does not seem a useful comment when you’re not proposing anything less blunt.

58

Mike Huben 01.07.18 at 9:50 pm

This is an important question!

Along those lines, we could also ask how many servants a rich person could employ.

What concerns me the most is the political power aspect. Not just from rich individuals, but from rich corporations. If we keep personal wealth low, but allow corporate wealth to be unlimited, then the political power will devolve upon corporations.

Likewise, we have an enormous problem with locking vast wealth into foundations with political purposes. We’d need to require that they spend down at some reasonable rate or we will have a major “dead hand of the past” problem.

Another important point may be the argument against philanthropy: which is better, Andre Carnegie accumulating a vast fortune in the blood of the workers and then creating libraries, or taxation of a lower paid Carnegie and higher paid workers so that the workers can decide they want to build libraries? While private philanthropy can be important for solving many problems, public philanthropy can solve much broader classes of problems. Maybe new institutions of philanthropy using public funds to attend to smaller, more idiosyncratic needs might be appropriate.

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musical mountaineer 01.07.18 at 10:10 pm

Thanks J-D, your comment clarifies everything.

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Cranky Observer 01.07.18 at 10:53 pm

= = = musical mountaineer @ 5:48 pm: Let’s say we cap individual net worth at $10 million, and annual income at $500K. Seems generous enough, right? It would put angel investors out of business.
Startups need cash, typically in increments of about two to ten million dollars. Angel investors need to be able to make many investments in this range, because the investments are at astronomical risk and the majority will fail. So an individual needs at minimum $100 million and an appetite for disaster, just to get in the game. = = =

There is very little evidence that the Silicon Valley investment capital model produces any positive results. Yes, there were a few successes in the 1990s, but as per usual a stopped clock is right twice per day. Since the 1990s 10s if not 100s of billions of USD have been invested via the investment capital fund route – “angel round” and elsewise – to very little effect. The major of new developments that improve our lives emerge from government and university research.

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musical mountaineer 01.07.18 at 10:54 pm

I don’t want to come across as an absolute wealth-apologist. I strongly suspect that wealth distribution is corrupted in the USA, and I have vague ideas as to remedies, some of which might find acceptance with my Progressive friends. But this was to be a collaborative thread on a particular topic, and I’ve nothing further to add, and no right to interfere. Carry on,

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thunen 01.08.18 at 12:55 am

@musical mountaineer / 49 and @J-D 57.
in the USA, the federal government’s small business innovation research (SBIR) program and small business investment corporations (SBIC) have, from the 1950s onward, typically provided about 50% – 66% of seed and early stage funding for US tech firms (like e.g. Genzyme and Qualcomm). various federal depts/agencies (including the CIA, NSA, DoAgri, DoD, DoEnergy) run venture capital funds (not, “things like venture capital funds” but firms that are actual VC firms – see e.g. IQT.com).
source: Linda Weiss. (2014). America Inc.?: Innovation and Enterprise in the National Security State. Cornell.
private VC is not the primary source of start up capital for innovative firms, and funds virtually zero basic R&D. private VC is largely about taking firms that have transited the ‘valley of death’ public (late stage investment).
in europe, if anything, the government presence is proportionately though not absolutely larger.

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ken melvin 01.08.18 at 1:04 am

Suspect that the increased disparity is tied to the greater appreciation of Free Markets.

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William Berry 01.08.18 at 1:47 am

“Thanks J-D, your comment clarifies everything”.

Well, I think mm is full of Hazlittian, or Hayekian, or Randian, or whatever kind, of hooey, and I generally agree with J-D, but hot-damn if that wasn’t a sick burn!

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Paul 01.08.18 at 4:33 am

#39 Brett

I agree regarding attempts to apply limits to illiquid holdings (e.g. companies, art). If dollar limits on ownership were applied, the owner would be best served by maximizing the private ownership of the resource and then just not putting any share of it on the market – for example Bezo could sink his income into carving off a portion of Amazon, taking it private then selling it to his wife for $5 to get a dodgy accounting value on it (aided by accounting tricks to avoid the inevitable “But we’d then measure value by X” solution that someone will put forward). The same principle would apply to owning rare art – Paintings by Monet are $10 each when sold inside families and hit the limit when sold between them.

The resulting push to private ownership to distort valuations would probably negatively impact the economic outcomes (e.g. some companies are just going to be smaller and less efficient as they can’t access effective funding vehicles for expansion).

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musical mountaineer 01.08.18 at 4:49 am

thunen acknowledged I’ll take that under consideration.

If I do a sick burn, it’s pretty much by accident. I don’t mean to be a pest.

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Joey 01.08.18 at 5:18 am

I find talk of a limit, ceiling, or general “this is absurd” line to be deeply ambiguous: the real question is what kind of policy you’re talking about.

It is one thing to say: In general we think a concentration of wealth (or income) in one person above $X is a problem, so therefore, we will have a progressive wealth (or income) tax with rates that get quite high around $X and above.

It is another thing to say: People should literally not be allowed to own more than $X. Once your startup company / house / market wage becomes so valuable that you own more than $X, you must sell the company or house or work for less, etc.

I imagine people’s intuitions will differ depending on what policies are actually on offer! But it sounds like you may be asking some questions that pick this up (I hope).

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Peter T 01.08.18 at 6:57 am

If you wish to prevent private wealth ballooning out of hand and distorting the social fabric you have to periodically confiscate it. You can do this Roman-style (those who displease the emperor are executed and their estates taken), medieval-style (those who plot against the state are executed and their estates confiscated), 17th century Swedish-style (all wealth in noble hands accumulated since some chosen date is declared invalidly transferred), or you can have a really, really big war every couple of generations. The last is the modern solution.

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J-D 01.08.18 at 7:16 am

musical mountaineer

Thanks J-D, your comment clarifies everything.

It would clarify your position if you would explain what leads you to the conclusions that taxes are not efficient; that their deleterious effects are almost impossible to gauge; and that their benefits, for any but the most fundamental functions of the State, are invariably less than advertised. But perhaps you have better things to do with your time than to make yourself clear.

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nastywoman 01.08.18 at 7:47 am

@53
”Thanks for your comments”

Thank you as you made me think:
If a rich person never show that she or he is ”rich” –
(like one of these ”frugal” Germans)
Like being able to afford an Urus but always driving a tiny little VW –

Then what?

71

ccc 01.08.18 at 9:58 am

Ingrid Robeyns #0:

Interesting work, the limitarianist approach looks very much worth exploring. There is something akin to it used in campaigning by http://highpaycentre.org/ I think. I’m curious to read how people think about this in different contexts/frames.

One point of feedback: the subquestions in your third part could also include the question if people think there should be a maximum wage span *within* each corporation or organization. Though the trend of contracting out e.g. cleaning tasks have diffused the situation there are still a “we” of sorts in many organizations, for example that is what some internal corporate messaging and practices tries to construct, and then the question how much income differences “we” should accept among “us” has a real context to latch on to.

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nastywoman 01.08.18 at 11:28 am

– and seriously –
I always wondered why I – as a kid – used to get far more envious -(or mad?) in ”my homeland” the US – than in any country in Europe -(with the exception of Paris)

Because it’s the way the ”riches” are shown and presented?

Like – I nearly had to throw up when I entered the first time a Trump building – the amount of (fake) gold really made me… very very… ”unwell”? – and now – as there is this gold-craze in art and there is this Chinese artist who puts everything on Gold – and I even painted an old chair of mine yesterday in Gold – could it be that the ”Riches Line” could be put if somebody has something ”in Gold” –

Or not?

73

SamChevre 01.08.18 at 1:17 pm

Michael Sullivan and jwl,

Please note that I’m including the value of already-earned retirement benefits in all cases. Here is how I calculated my values (and I did it quickly, in my head, so could have made another mistake in addition to getting the order of magnitude wrong the first time.)

NPV just of Social Security, at age 65, is about $500,000.

Generally, the rule of thumb for cost calculations on retirement income is that it is half every eight years, counting back–so half the final value between 57 and 65, half the remainder between 49 and 57, etc. (This, by the way, is why traditional pensions are dying–the costs are badly back-loaded even before you get a rate crunch like we’ve seen over the past 20 years.)

So family 1 is retirement age, and has just Social Security.

Family 2 has Social Security, and pensions equal to twice Social Security (this is about what a schoolteacher would get in my state). Since they are 15 years from retirement, this is worth a little less than the retirement income for family 1 (a discount to 1/4 of value for the 15 years remaining, but the benefit is 3 times the size.) They have the remainder in cash savings, but expect to spend those savings helping their kids get through college.

Back to the OT subject: Note, I’m using family income about $100,000 as 80th percentile, $250,000 as 95th percentile; these are roughly correct.

I would set the limits much higher than the previous commenters. I would think of “wealthy” as “all family members, including children and grandchildren currently living, could live at the 80th percentile without working for their whole lives”, which would put wealth somewhere in the $25-$100 million category, depending on household size and age. (I figuring 5 people for an average of 50 years at the low end, 12 people for an average of 50 years at the high end.) I would put super-wealthy/generationally wealthy as “all descendants could live safely at the 95th percentile forever”, which is very sensitive to family size and expected incomes, but would be somewhere in the $500 million – $1 billion range.

And I dislike ensured stability at the top: I would rather Bill Gates, Sergey Brin, and Larry Ellison as the super-wealthy than Kennedies and Rockefellers and Mellons. So my income limits would be set to make accumulating generational wealth plausible.

I agree with the multiple comments that the issue is political influence, not consumption. I also would point toward this old interfluidity piece on Wealth as Insurance.

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Trader Joe 01.08.18 at 2:41 pm

An interesting survey idea. I’ll be curious to learn some of the answers.

I think the matter of wealth and how much is a thing which tends to defy a lot of easy quantification. For a lot of people they’d define it in more descriptive terms: a good car, a well maintained house, ample money for a good holiday, able to afford what they want at the shops, able to afford reasonable health care etc.

Others definite it in unit terms – $10 million or some otherwise arbitrary amount (why not $7, 248, 932).

It would seem to me, and JQ alludes to it by describing how to tax towards it, is what is the actual public policy goal you are trying to achieve – is it socialistic distribution, is it limiting power and influence, or is it something else.

Observably when wealth is taken out of the equation power and influence still occurs it just happens along a different vector (often force) and isn’t always inherently more desirable. Equally, poverty still happens even when wealth distribution is flatter it just may happen at a different level.

I’d say the answer to the question is: A rich person is the one who has $1 million more than me (and a newer Lambo than mine, as if).

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William Meyer 01.08.18 at 3:06 pm

Musical Mountaineer @49–Our current “innovation” pipeline, angel investors to venture capitalists to sale or IPO, is not the only, and demonstrably not the best, approach to technological innovation.

In comparison to the US DOD and NIH, whose record of innovation includes radar, the transistor, all modern computing and telecommunications, nuclear power, practical air transport, biotech and much more, this commercialized innovation pipeline is actually quite lame and mostly derivative.

If you want more genuinely advanced technology, tax more and spend more on government R&D. If you want more social media startups, focus on Silicon Valley.

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Ingrid Robeyns 01.08.18 at 3:14 pm

I’ll engage with some of the other comments later today and tomorrow, but here’s one I have been pondering about over the last hour and though I should respond to a few of the suggestions – on the question what the maximal ratio should be between the highest earner, and the XYZ earner in a company.

We will be asking both about maxima/ratio’s in society, but also within organisations/companies.

For societies: Michael Sullivan (@41) suggests to tie it not to the median, but to the poverty level. In the third part of the survey, we have an open question on whether their should be an upper limit to one’s annual net earnings, and we have information on the poverty level, so the ratio can be calculated.

For organisations/companies:
Cranky Observer (@14) suggests for the ratio median mid-carrier employee vs the President/CEO a ratio of 1:10.
If one asks about the ration between the *average* earner and the highest-paid, then one of the problems, which ccc rightly pointed at, is that many organisations have outsourced the worst-paid jobs (e.g. cleaners and catering) and hence the average has gone up. One way to deal with this, would be to ask for the span between the *median* and highest-paid workers – but it is highly unlikely that most respondents know the concept of ‘median income’. I’ve nevertheless decide to go for ‘median’ yet to include a brief description after the word ‘median’, (namely: “het meest voorkomende inkomen in de organisatie” = “the most frequently paid income in the organisation”).
However, one could also argue that people responding to surveys will see those whose work has been outsources as workers who are part of the company/organisation, and then one may want to keep the question focussed on the span between the lowest and highest earnings.

There may well be a tension between wanting to have the formulations precisely right (for substantive reasons) and wanting to have the formulations accessible to people from all parts of society.

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Whirrlaway 01.08.18 at 5:08 pm

It seems it should make a difference whether holders of vast wealth are using it to support pool parties in Antigua or funding hospitals, education, operas. Maybe this should be broken into categories: how much [genuine!!] philanthropy, how much personal lifestyle, how much coin in the McDuck Money Bin.

[… IMO Jesus’ advice to the Rich Young Ruler is generally misunderstood; giving to the poor responsibly is no easy job. The RYR was sad because he had a f-ton of nasty work ahead of him.]

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Z 01.08.18 at 5:17 pm

A pedantic note: the median need not be “het meest voorkomende inkomen in de organisatie” and in fact often won’t be for real companies and organizations. Well, I’m sure you know that and I understand the balancing effort you described above.

Otherwise, the project seems truly great! Please tell us what comes out of it. As a side note, one significant political force in France campaigned on limitarian policies. They chose 20 times the median income, and within a company 20 times the minimum wage of that company, as the threshold over which any further income would be taxed at a 100%. I seem to recall that capital gain were taxed at 100% above 1 million a year but I’m not sure (personally, I think that the tax rate should tend towards 100% but never actually reach it because I tend to think that if someone really, truly wants to earn a lot of money, it should not be actually impossible to do so; just as I would oppose a strict cap on the number of academic papers one is allowed to publish in one year).

Slightly OT, but I’ve always thought that people with an egalitarian disposition (like most of us here, probably) should acknowledge one of the point made by musical mountaineer above: all else being equal, an unequal society will have more islands of stupendous prosperity, intelligence and creativity than an equal one, at least in the short term (of course, it will also have more islands of squalid neglect and abject spiritual and material deprivation). We tend to think that less inequality means less of Trump Tower fountain, less Abramovich’s yacht and less Koch brothers and celebrate that fact (and we are right to do so) but it will (all else being equal and at least in the short-term) mean less Silicon Valley, less Institute for Advanced Studies, less Geffen’s school of medical studies and less Paulson’s donation to Harvard (as they currently exist). In my mind, there is no question that the deal is worth it, but I think it’s unwise to pretend that our islands of concentrated wealth will necessarily miraculously escape a significant reduction of inequalities.

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Chip Daniels 01.08.18 at 6:16 pm

Relating to the comment above about how a limitation on wealth might spell the end of Lamborghinis, its entirely possible, but in my opinion, not a bad thing.

I’m thinking of how in every age, the superrich have used their wealth to create sometimes staggeringly beautiful works of art, concentrating vast amounts of labor and resources into things like palaces, country estates, jewelry and the like.

And in republican times, those things disappear; The European manor houses and Faberge eggs went away.
But the labor and resources that otherwise would have gone into these things didn’t go away; it was merely redirected to other useful efforts.

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MB 01.08.18 at 6:29 pm

Ingrid, your definition of median “the most frequently paid income in the organisation”, is actually the definition for the mode of a distribution. The median is the number such that 50% are paid more and 50% are paid less than that number.

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Ingrid Robeyns 01.08.18 at 6:35 pm

Z and MB – yes, sorry, I made the error in translating, in Dutch I had ‘het modaal inkomen’. But the problem remains that many (so an hour ago also me!) mix up these notions, whether by being sloppy, or being too fast, or being tired, or because they don’t know them. So that’s a challenge for survey design.

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Kiwanda 01.08.18 at 7:05 pm

The question of what constitutes a “modest” or a “lavish” lifestyle is interesting, and considering it, instead of income/wealth, seems analogous to considering poverty not in terms of income, but in terms of quality of life, or the lack thereof. Some comments, including some prior discussion:
– Total area of dwelling per family could be more like area per person.
– Total area of dwelling doesn’t cover location: people generally like living in Manhattan more than in Sioux Falls. Location implies closeness of friends and family, availability of satisfying work, school quality, entertainment availability, nearby skiing, beaches, ocean views, musical events, art shows, theater, etc. .
-In some locations, having a car is unnecessary, other places it’s near-essential.
– Money improves marital eligibility, both directly, and via enabling the cultivation of higher attractiveness.

How do these considerations affect what it means to have a lavish lifestyle?

Regarding financial goals: they depend on my confidence that my money would not be needed by my family (including maybe siblings, parents, possible future grandchildren) to have their basic needs (including healthcare, education, daycare, eldercare) met, to say nothing of my own needs in this regard. So this will look very different in countries with adequate provision of social services, versus countries such as the U.S. that lack them.

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Jerry Vinokurov 01.08.18 at 8:33 pm

Let’s say we cap individual net worth at $10 million, and annual income at $500K. Seems generous enough, right? It would put angel investors out of business.

Startups need cash, typically in increments of about two to ten million dollars. Angel investors need to be able to make many investments in this range, because the investments are at astronomical risk and the majority will fail. So an individual needs at minimum $100 million and an appetite for disaster, just to get in the game.

This is actually a terrific argument for income limits; utterly laying waste to the deranged VC swamp of Silicon Valley would be a positive good.

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Antoni Jaume 01.08.18 at 10:20 pm

Rather than a fixed number for wealth, why not use exponential tax laws? One for income, one for wealth, the government decides on a budget, set the rate at a value that, given the wealth of the country population and a relative equality, would bring the money in, it would flatten inequalities, and be progressive. If due to a greater level of inequality the tax income is greater than the budget, the excess would be distributed equally to people.

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Tomboktu 01.08.18 at 11:14 pm

Two things strike me.

One is that your method is a survey. When an NGO in Ireland established minimum essential budgets and minimum essential standard of living for different types of household in different locations, they used focus groups to try to arrive at a consensus about what good should be regarded as essential and which ones should not. (The MESL is now used by the state body that deals with people who have become insolvent as the benchmark of what they may retain from income and what they must use to reduce the excessive debt.) That interaction between people allowed people share perspectives in agreeing (within their focus group) a basket of goods that the researchers could then price on the market.

The second is the language (although I recognise that I may not to understand differences in nuances between Dutch and English). Generally, being rich is seen as a desirable characteristic or objective, but being poor is not. I might win €35 on the Euromillions, but it is the €35.9 million that I hope for; no lottery offers to take away my wealth. Well, none that describes itself as a lottery: the lotteries where I might lose everything are marketed as ‘investments’ and the risk of losing is (in the Irish radio advertisement equivalent of small print) squeezed at the end into a rapidly stated ‘health warning’ that “investments can go down as well as up”.

Further, being poor is understood as having an inadequacy of income, but being rich is (generally) not seen as the mirror image, that is, not seen as having an excess.

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Collin Street 01.09.18 at 2:53 am

But hang on, this wealth-concentration reflects the same damned perspectives on distributions of talent that drive “strong leader” approaches, no?

If you think that people are good and competent, you’ll favour wide distributions of (power money rtc), if you think that people are shit and worthless you’ll favour concentrations to maximise the odds of getting one of the good ones.

… since people project themselves on others, who do you want in positions of power?

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Kurt Schuler 01.09.18 at 3:57 am

JD @36:

In response to your comment on my post @32, see the Forbes world list of billionaires:
https://www.forbes.com/billionaires/list/#version:static

Look for example at the top ten: Bill Gates, Jeff Bezos, Warren Buffet, Amancio Ortega, Mark Zuckerberg, Carlos Slim, Larry Ellison, Charles Koch, David Koch, Michael Bloomberg. All made their fortunes in highly competitive fields where nobody had to do business with them, except Carlos Slim, part of whose wealth comes from a telecom firm that Mexican law protected from competition for years. All but the Koch brothers were the founders of the businesses that made their fortunes. The Koch brothers inherited their father’s firm and then took it from mid-sized to gigantic.

Go farther down the list and you will find that the pattern continues. On a humbler scale, if you grew up in or now live someplace small enough where people know who is rich and how they got that way, think about who they are. In the small city where I grew up they were the owners or managers of businesses that made furniture polish (an inherited business, which the second and third generations expanded from regional to worldwide scale), tractors, garbage disposals, heaters, lawnmowers, patio chairs, raincoats, steel castings, and auto parts, as well as some bankers, insurance agents, etc. Again, all were highly competitive fields — there is no monopoly on lawnmowers, for instance. Inheritance of a very large fortune can keep the heirs comfortable for several generations if managed prudently, but there are no Rockefellers, Carnegies, Vanderbilts, Astors, Mellons, or Fords on the Forbes list, indicating how quickly new wealth surpasses old wealth.

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Chip Daniels 01.09.18 at 4:19 am

@87
“Voluntary commercial transactions” doesn’t produce the wealth though.

For example, that phrase makes it sound like Bill Gates accumulated billions of dollars by literally, himself, conducting voluntary exchanges with people, conjuring up an image where he was furiously, night and day, writing code for MS-DOS and personally burning floppy disks, incrementally gathering more and more wealth.

It is absurdly silly, because the wealth came from ownership of patents and copyrights which were given to him by the state.

It is the same story with extractive industries like oil and coal, or even manufacturing; The real accumulation of wealth doesn’t arise from direct labor, it is always produced by rents from ownership of something.

And ownership isn’t at all voluntary- It is a coercive imposition by the state.

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nastywoman 01.09.18 at 11:37 am

– and so the major ”difficulty” – Where people put the riches-line? might be actually ”the tax system” as it can happen that some of the richest people among US don’t have a simple dime – or what did Donald Trump once tell so (in)famously?

”I’m a billion dollars poorer than a homeless man”.

And after I checked with the ”richest” members of my family and friends – mostly ”independent” or ”independently wealthy” – a lot of them ”didn’t make a single cent” last year – or had so much to write of – that ”tax wise” they were poorer than Warren Buffets Secretary – which could bring me to the suggestion that the survey REALLY has to operate like a Member of the Italian IRS – which means – sending out ”inspectors” to Lamborghini Meetings and asking the drivers:
How in the world could they afford these cars IF in their tax returns said that they couldn’t afford these cars – because they didn’t make a single cent in the last year and only millions or even billions Minus in the years before?

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Isaiah Thomas 01.09.18 at 6:14 pm

This sounds like an interesting and important survey, but I’m not sure what *normative* consequences you mean to extract from it given that, as you rightfully acknowledge, how we think of conspicuous wealth is not independent of the system by which that wealth is made, distributed and consumed – i.e. the present species of neoliberal-Dutch capitalism.

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Shirley0401 01.09.18 at 8:38 pm

The first part gives the respondents descriptions of the standards of living of 10 households, by giving them information on the type of accommodation, whether or not they have a second (holiday) house, number and types of cars, number and types of holidays, and total financial value of savings. We then ask to categorise them as ‘having just enough’, ‘having a reasonable standard of living’, ‘having a good standard of living’, ‘being rich’, ‘being very rich’.

I wonder whether including a full range of scenarios/responses for context might not change the data you get. I can’t help thinking if people are only looking at “just enough” on up, there’ll be less mindfulness of the fact that wealth lives in the same world as starvation and poverty, which puts things in perspective differently than not having that even present as an option. Similarly a family with no home and not enough to eat would contrast a great deal more with the 5 house family, and again provide a bit more context.
This is an area of inquiry I think will be useful to dig into. Thanks for doing this.

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Kiwanda 01.10.18 at 12:33 am

Kurt Schuler:

The Kochs’ fortunes are based in considerable part on theft, corruption, and pollution.

The vast fortunes of Gates, Zuckerberg, Bezos, and the Google founders are based on overwhelming network effects.

The dependence of the Rockefeller fortune on monopoly, Carnegie on crony capitalism and brutal labor practices, and Jay Gould on stock market manipulations are well known. The corruption involved in “private equity”, also known as “stealing from the employees and stockholders”, is also well known.

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Ingrid Robeyns 01.10.18 at 8:30 am

Isaiah Thomas @90 – you are right, one can’t draw normative conclusions from a survey except if one believes that normativity is grounded in people’s expressed beliefs. But it is interesting nevertheless, e.g. because it gives information on the ideological climate one lives in, and how the population at large thinks about those issues. This has direct implications for feasibility constraints. An example: Much of the philosophical literature believes that inheritance cannot be justified, at least not up to the level it’s now. Yet the literature is full with references to studies that the population at large rejects inheritance taxation. Philosophers, like me, should at least pauze to try to understand this discrepancy. Perhaps we are overlooking something key in our normative argumentation. Perhaps people are fine with inheritance up to a certain ceiling, but not above (that’s one open question I’ll be asking).

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Ingrid Robeyns 01.10.18 at 8:34 am

On JQ’s (@38) and others’ comments that we should focus on optimal income/wealth taxation: this is true in the realm of policy-making. My limitarianism project is ambitious whether it is only about policy mkaing/institutional design, or also about fundamental principles, to which one may have to make concessions in policy making (e.g. because there are several principles/values and one has to balance them). I admit that my own thinking on this is ambiguous. I’ll give myself a few years to try to sort that all out, though :)

If we are in the realm of policy making and if you are a welfare-utilitarian, yes; if the income/wealth above the level that would be taxed away, that would be inefficient. but, as was mentioned, it could serve democratic purposes. Still, as was also mentioned in the discussion in this thread, the question is whether interventions should be upstream or downstream. Something I will also have to think more about (though most questions in this survey do not touch on this issue, since they try to figure out how people would see the ideal outcome).

In the second part of the survey, I have included at statement suggesting (in more accessible wording) that the upper marginal income tax rate should be 70% (it is now about 52%). Interesting to see how people will respond to this, and how their own characteristics relate to their answers.

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Ingrid Robeyns 01.10.18 at 8:45 am

Timbuktu @85 – on your second point: I think people disagree on this. And one of the things the survey wants to study, is exactly your claim that people see being rich not as something problematic. But I agree with you that there is no straight mirroring to be expected of what people think about poverty, for various reasons you give and also implicit in the contributions of others to this thread.

On your first point – the method: in preparing for this survey, I had a long conversation with Cok Vrooman, who is the Dutch sociologist working at the Social and Cultural ‘Planning office’ (akin to the statistical office), and who has directed the work on the establishment of their poverty lines. They also used a trajectory with multiple meetings of a focus group. I think it would be fantastic if this could be done with the question of the upper tail of the wealth distribution too, but I can’t do it – I am already stretching my scholarly/scientific abilities in conducting a survey, and don’t have the capacities nor the funding to conduct such a focus group (I do have a large research grant to study limitarianism, but that grant was awarded for philosophical analysis). But I agree it would be very interesting to do, and I hope that they survey I’m conducting at least contributes insights/knowledge to those working on this topic in the future (even if the knowledge is knowledge on how *not* to conduct this research).

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J-D 01.10.18 at 11:19 am

Kurt Schuler
You wrote earlier (and I quoted these exact words in order to respond to them):

After all, most very rich people in Western countries have accumulated their wealth though years of voluntary commercial transactions with other people rather than through inheritance or theft …

In my opinion (and I suspect there would be wide agreement), the expression ‘rich, but not a billionaire’ is a natural one with a plain meaning, and so is the expression ‘very rich, but not a billionaire’. I think most people, on consideration, would agree that the majority of rich people, and even the majority of very rich people, are not billionaires. I don’t think that when you referred to ‘very rich people’ you were referring only or primarily to billionaires (and if you were I think you need to be explicit for clarity).

If we’re discussing a category of ‘very rich people’ which is much wider than the category of billionaires, there is some interest in seeing what we can learn about billionaires (because, I acknowledge, they are the very richest of the very rich and so the most distinct members of the category), but I don’t think it’s justified to assume without investigation that billionaires are representative of a broader category of the very rich. In particular, even if it’s true that most billionaires didn’t inherit wealth, it doesn’t follow that the same is true of most very rich people.

How much truth is there, though, in saying that most billionaires didn’t inherit wealth? I don’t know how reliable the list you cite of billionaires is, but I’ll accept it for the sake of argument, because I have no reason to think that any inaccuracy in the list is important for this discussion. You start off with the first ten on the list (but ten is a very small sample, surely?). Two of them, Charles Koch and David Koch, inherited the business which has made them billionaires. You tell me, and I am prepared to take your word for it, that they made themselves richer; but even if that’s so, isn’t it true that it was inheritance that made them rich?

Scrolling further down the list, I see more names that I don’t recognise (so I haven’t read it to the end), but also some surnames which I think will be familiar to others here as well as to me: Walton (several times); Mars (twice); Jobs; Alsaud. There are other names I recognise also, but I mention these in particular because I suspect that, like the Kochs, they inherited wealth, even if perhaps they (like the Kochs) have added to it personally. And if there are names I recognise as being linked with inherited wealth, isn’t it likely there are also such links among those names I don’t recognise?

On a humbler scale, if you grew up in or now live someplace small enough where people know who is rich and how they got that way, think about who they are.

I don’t know what kind of smallness you have in mind; the city where I now live and in which I grew up (Sydney) is one of the hundred largest in the world. Still, I imagine if you asked people here if they know who’s rich in Sydney, you’d get answers. The first name to spring to my mind, and I suspect it would be for a lot of people in Sydney, is that of James Packer, but I’m not sure how good an example he is for your case. The business which was the origin of his wealth is one he inherited from his father (Kerry Packer); and the business which was the origin of Kerry’s wealth was one he inherited from his father (Frank Packer); and the business which was the origin of Frank’s wealth was one he inherited from his father (RC Packer).

Inheritance of a very large fortune can keep the heirs comfortable for several generations if managed prudently, but there are no Rockefellers, Carnegies, Vanderbilts, Astors, Mellons, or Fords on the Forbes list, indicating how quickly new wealth surpasses old wealth.

But does old wealth therefore cease to be wealth? Billionaires or not, do no Rockefellers, Carnegies, Vanderbilts, Astors, Mellons, or Fords count as very rich? Billionaire or not, does not the Duke of Westminster count as very rich, even if there are people in the United Kingdom richer than he is? Do you know what his father, the previous Duke, is reported to have said when asked what advice he would give young entrepreneurs keen to imitate his success? ‘Make sure they have an ancestor who was a very close friend of William the Conqueror.’

You’ve made some interesting observations, I don’t deny it, but I don’t think they add up to an adequate justification for accepting your generalisation. I’m not suggesting that inheritance is so important that it overwhelms other factors, but you haven’t demonstrated that it matters as little as you seem to be suggesting. I’d need stronger evidence before I accepted that.

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Collin Street 01.10.18 at 12:12 pm

It is the same story with extractive industries like oil and coal, or even manufacturing; The real accumulation of wealth doesn’t arise from direct labor, it is always produced by rents from ownership of something.

I’ve said this before, but: all profit is rent. Market sectors that are competitive are not market sectors from which profits can be drawn. Competition even in theory drives the sale price down to the marginal cost of production [ie, insufficient to cover the fixed costs], and in reality — once you strip away the “market actors are reasonable” assumption — it drives the sale price down to what the craziest operator thinks their marginal costs are [ie, insufficient to even cover the cost of the sale by anybody]

If you’re making money, it’s because there’s a barrier keeping the self-destructive and the desperate-to-the-point-of-insanity out. What’s that barrier? Don’t know, depends on your circumstances, but the maths can’t lie here.

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SamChevre 01.10.18 at 1:41 pm

You tell me, and I am prepared to take your word for it, that they made themselves richer; but even if that’s so, isn’t it true that it was inheritance that made them rich?

I do not think that is necessarily so; I think it depends on the difference between what they inherited and what they have.

For example, in my own case–my grandmother gave me $10,000 in help with college expenses–without which I would have found college much more difficult. I now own a house: I would not say that it is the same as if I had been given a house.

Similarly for a local supermarket chain: the family that owns it owns about 100 grocery stores. Their grandfather started one store, which his sons inherited and grew into a local chain. I would similarly not say they inherited their wealth, even though they inherited the original business.

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Layman 01.10.18 at 6:15 pm

@ SamChevre, if someone has more wealth than they inherited, it cannot be said that they inherited their wealth? That seems extreme to me. I imagine you must draw the line somewhere, but it’s not at all clear where that is. Even a safe, passive investor will double their inheritance in a relatively few years.

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SamChevre 01.10.18 at 11:11 pm

@ Layman–I think we are mostly in agreement. There’s a point at which the growth in wealth large enough relative to the inherited amount that describing the whole amount as “inherited wealth” is inaccurate, but it is hard to say where that line is. But I think that if you end up arguing that ANY inheritance–even my $10,000–means that ANY future wealth–even if I were as wealthy as Bill Gates–is inherited, you end up with an untenable argument.

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Ogden Wernstrom 01.10.18 at 11:49 pm

Forbes, in their listing of billionaires, appears to use “self-made” as the descriptor for anyone who has taken an active role in their businesses. Perhaps the inheritance did not amount to a nominal billion at the time it was passed-on?

Both David and Charles Koch are listed as “self-made” billionaires by Forbes. Inflation alone may have first made them billionaires.

The dissipation of the fortunes of long ago can be due to many factors. There are about 200 currently-living Rockefeller descendants; many of the old fortunes have funded many philanthropic organizations; the US has had estate taxes for all but one of the past one hundred years; family-held companies average lower return on investment than the average of similar companies.

I’d put the riches line well below $1billion in assets, BTW. We’re just looking at an extreme end of the range in an attempt to…um…what?

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Peter T 01.11.18 at 12:51 am

Broadly, attitudes to wealth only partly focus on the amount. They also vary with how it is gained and how it is used, and both shift over time. One does not have to read a lot of history to realise that, in western Europe. inherited wealth was once thought superior to that gained in the current generation. Reading the mainstream opinions of the Golden Age, one realises that the moguls of the time were admired for their rapacity, ruthlessness and low cunning (Jim Fisk to reporter on a battle for control of a railroad: “Will you win?” “Sure, so long as this printing press (churning out shares faster than his rivals could buy them) don’t go bust.”). Left-wing critiques were a minority strand of opinion. The squire, heavily constrained by local obligations, is a different figure from the industrialist. Romney as asset-stripper is in a different class to Bill Gates, and both to Buffet.

These sorts of attitudes underlie judgements about wealth. It might be worth following up this survey by teasing them out. I suspect European attitudes would be very different to US ones.

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Equalitus 01.11.18 at 10:26 am

I would say the limit should be 80%-20% so that within a geo-economic jurisdiction that is either municipality, county, state or nation-state or private firm, no one earns more than 4x times the lowest paid person.

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Equalitus 01.11.18 at 10:29 am

In the US if I were supreme central planner, [a thought experiment but informative to get my philosophical opinion about this] I would have a wealth ceiling on $1.337m dollar per person. No less than that. It is namely a “leet” level of reasonably dynamic stochastic pragmatic fair and reasonable wealth level within some constraints of moral justification theory.

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Trader Joe 01.11.18 at 12:34 pm

Equalitus @104

You don’t really say how you come up with $1.337 million wealth cap per person, but I think your total is ridiculously low and completely ignores age and priors. To be specific, a relatively modest home in the San Francisco area can easily be worth $1.337 million….this isn’t grand living but fairly ordinary middle-class (in that market) housing. What would you do for those who own or substantially own such assets – put them out? Tax them on market appreciation that they can’t readily access?

Many people who own such homes didn’t necessarily buy them for that amount, but they they are worth that nonetheless. Similarly, even if they did pay an amount something like that, unless the imagined system is going to fully fund retirements and all other aspects of living, a home alone cannot be their only asset – as such any time of wealth cap would have to be accompanied by related pensions or other support mechanisms.

As someone noted above – accumulating $500k to $1m to fund a retirement is not all that uncommon and hardly a definition of ‘wealth’ (though certainly not poverty either)- age effects have to be a factor in the equation unless there are parallel support systems.

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Equalitus 01.11.18 at 4:57 pm

@105 It would make convergence tendency and lift up poor people’s low or negative wealth. Only that way could the low net-worth ceiling be applied. But I didn’t say it had to be implemented within a year. Or even 5 years. But preferably less than 10 years if not a 5 year plan of wealth distribution across America. In Norway a statistician researcher claimed the upper level of wealth equality outside a drag on the economy, would be around 80% marginal wealth tax from approximately $700k with current US dollar value converted to Norwegian crowns. In the US that could perhaps be applied on State level in 20-30 states, hardly on a national level. But $1.5M as wealth cap on State level would be immensely fair and Bayesian for the great majority of Americans.

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Layman 01.11.18 at 4:59 pm

“As someone noted above – accumulating $500k to $1m to fund a retirement is not all that uncommon and hardly a definition of ‘wealth’ (though certainly not poverty either)- age effects have to be a factor in the equation unless there are parallel support systems.”

Good grief. In the US, only 10% of households near retirement age have accumulated $500k or more in retirement savings. I’d say that makes it very uncommon.

https://www.gao.gov/assets/680/670153.pdf

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clew 01.11.18 at 9:59 pm

” if someone has more wealth than they inherited, it cannot be said that they inherited their wealth? That seems extreme to me. I imagine you must draw the line somewhere, but it’s not at all clear where that is.”

It’s harder to get out of debt than it is to earn money if you aren’t in debt, and easier to make money if you have some to start with. It’s easier to earn money if you can spend several years increasing your capabilities without leaving your family to ail and starve alone. If you take effort and genius as the lever, having money is the place to stand.

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Moz of Yarramulla 01.11.18 at 11:39 pm

I’m not sure that only considering the extremely wealthy is useful.

The people I think of as “category: rich” seems to start at a few million plus a house, because owning your own house is the start point for being rich… at least in Sydney, where you’re looking at more than 10x average earnings. They’re the ones investing in things and running businesses rather than working for someone else (and I include “independent contractors” as working for someone else).

Assorted markers that I think are important:
* have excess money to spend or invest
* control their work hours and environment
* if they have an employer they’re bribed to work rather than threatened [1]
* they’re off Maslov and onto “which want to gratify”

I do prefer the older style of wealth, where it’s important to quietly have nice things rather than splash money about. I favour luxury taxes largely for that reason – they’re the flip side of tax deductions for charities in many ways.

One convenient definition of wealthy is someone whose taxable income is less than 80% of their actual income. Another is someone who complains about fines being levied as days gross income rather than fixed levels (or car confiscations).

[1] viz, at the very bottom end it’s “work or starve” but for a lot of middle class it’s “maintain a career or it’ll be very hard to climb back up in the future”. Rich people, OTOH, generally work for someone else because it’s more money more easily, or as a favour to a friend or something similar.

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anon 01.12.18 at 1:28 am

Not a single comment here by someone who considers themselves ‘rich’.

So all the wealth or income to be confiscated to help ‘society’ will come from others.

How convenient. None of us have to give up a thing. Yet we’ll all get to feel so very virtuous.

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John Quiggin 01.12.18 at 6:31 am

@110 How do you know this? AFAICT no-one in this thread has stated their income or wealth, or whether they personally consider themselves ‘rich’.

Since I’m not hiding behind anonymity, it’s easy enough to verify that I’ve regularly called for an increase in the top marginal tax rate in Australia (with a bit more effort, you can verify that I pay that rate, if you want)

https://www.crikey.com.au/2013/05/06/fantasy-budget-economist-john-quiggin-is-treasurer-for-a-day/

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nastywoman 01.12.18 at 6:40 am

@110
”Not a single comment here by someone who considers themselves ‘rich’.”

I’m rich – and mentioned it on another thread – and was not ”liked” for being ”rich” – and I think I also kind of hinted it that I got ”some dough” with the remark that I belong to ”the cult of less” –

Sooo about ”None of us have to give up a thing”.
I – ME! – already gave up to drive a Lambo Urus -(even if I actually could afford the awesome machine) –
BUT what does that say about
”Where do people put the riches-line?” –
or as I lately put the riches-line under everybody who owns a Beach Shag on the California coast – as there are no Beach Shags -(directly on the beach) anymore – for under 2 Mill –

so THERE!!

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nastywoman 01.12.18 at 6:51 am

– and about ”the taxes” –
I absolutely LOVE the highest possible taxes – especially if I ME!! get taxed – that’s why I currently reside in Europe and NOT in my ”homeland”.

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Layman 01.12.18 at 11:12 am

@110

I’m moderately rich. When I was working I was ridiculously income-rich. I’ve always called for higher top marginal tax rates and an end to the advantaged tax treatment of capital gains, and the taxing of inheritances; and on the flip side for a more generous social safety net including universal access single-payer health care.

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Dipper 01.12.18 at 11:34 am

Bill Gates has wealth far beyond any sensible limit for one person. He uses his wealth to fund development and health initiatives in Africa and elsewhere. So if you cap individual wealth, not only do you lose the Gates Foundation and replace it with in all probability a much more corrupt and inefficient system of funding international development, but you probably lose much of the development of the PC as he may not have done it if the opportunity to amass considerable wealth had not been there. Be careful what you wish for.

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Michael Sullivan 01.12.18 at 6:08 pm

Layman @ 107 writes:

“Good grief. In the US, only 10% of households near retirement age have accumulated $500k or more in retirement savings. I’d say that makes it very uncommon.”

I don’t think of 10% as “very uncommon” for starters, but I guess that’s semantics.

OTOH, I’d like to take issue with the idea that this amount of wealth could reasonably make one “rich” by rich world standards. A household at the median income level (~60k), if they save 10% of income for 40 years and earn 4% inflation adjusted will accumulate >500k by the end of that term in today’s dollars. That has, at least in modern history been achievable over nearly every 40 year period with a fairly standard mix of stocks and bonds to which nearly all middle class households have had reasonable access since at least the 1940s in the US.

So basically if you are a median income family in the US, and you save even *reasonably* prudently for retirement, you have a fairly high probability of accumulating 500k-1mil by age 65. The fact that only 10% of households do that is a problem, but it is as much a problem of education, culture and default systems as it is money. The fact is that if you want to continue to live in retirement the way you did while working, you actually *need* to accumulate something on the order of 500k as a median income family, even if you don’t include the value of social security. You don’t have to do that if you have a pension benefit, but fewer and fewer people have pension benefits (in the US at least), and if you count the present value of the pension benefit, if it supports a median consumption level, adding up the present value of pensions and social security (and home equity for a paid off house), and you’re almost certainly over 500k.

Average US retirement age is about 63.5 and average ss payment is 1300. that’s an NPV of ~200k, or probably 350k for an average 2 person household. To support expenditures of 3500/month (42k so much less than the 60k nominal income to account for taxes and other items not needed once children are grown), you’d need some combination of pensions/annuities/SS and assets with an NPV of roughly 540k at age 63.5 with an average life expectancy. A bit more to get it actually guaranteed by an annuity, probably about 6-700k at current life annuity rates.

So no, 500k is not an unreasonable amount to accumulate.

The people who don’t have 500k in investments, either have social security and pensions and home equity worth that much or close, or they are in for a rude awakening when it comes time to retire.

And if it’s feasible to live on something moderately less than the median income, then it’s very feasible for a median income family to save that much by 65 without being Scrooge.

And it’s feasible for a family around the 75th percentile of income to save over a million, again without being crazy frugal.

It’s *actually* feasible to save up enough to retire at 45-50 for people of median income level if they are also in a medium or low cost of living area, by saving 30-40% of their income. Most people aren’t willing to live like that, but it does not require living in poverty or making a very high income, though it’s much easier with the latter. I’m not surprised that this is a rare choice for median income families, but it frankly astounds me that more people in the 80-95th income percentiles of the rich world don’t do this.

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Orange Watch 01.12.18 at 7:04 pm

Layman@107:
Good grief. In the US, only 10% of households near retirement age have accumulated $500k or more in retirement savings. I’d say that makes it very uncommon.

We’re all just middle-class within our echo chambers.

A couple of years ago, when a tax code change (can’t remember precisely which, but it would have impacted sale of real estate you didn’t live in) was being mooted, I had a protracted argument about what “rich” means with an old classmate who’s now an AD Army Major, with all associated pay, benefits, and allotments. His point of view, from interacting with his peers, was that normal middle-class people like them considered $2m a standard baseline retirement savings target.

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Moz of Yarramulla 01.12.18 at 10:30 pm

Like “lifestyles of the ludicrously wealthy”, I don’t really see the point except as a derail. Should only the very rich be permitted opinions on the very rich? I note we rarely see the opposite opinion, the rich are very willing to make demands of the less well off and especially of the poor.

I think you could easily find out that people like Prof Quiggin are not making shocking new disclosures above. The whole stereotype of the “inner city Green voter” is of someone who is wealthy enough to be affected by top margin tax rates yet votes for those to kick in earlier and harder every time they get a chance. I do that, even though I could double my income without being affected by the top marginal rate… because I think that kicks in at far too high a level.

But I’d be quite happy to see the marginal rate I do pay go from 40% to 50%, and I think the top rate should be 60%-80% rather than 40% (there are stupid games involving deficit levies and a tax on people who think private health insurance is a social bad so the actual rates are not the advertised ones).

That doesn’t change the silly distribution of wealth and tax rates, or affect the validity of my opinions on it.

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Matt 01.13.18 at 12:41 am

I’m at about 90th percentile income in the US and have been for the last few years, so ridiculously affluent by global standards. I’ve mentioned here once before that I had such a poor idea of what my skills were “worth” that when I took my current position, the employer countered my initial salary request with a higher number. But I support removing the cap on income that gets taxed to fund Social Security, and more generally, a society with more social support and more progressive taxes to fund it.

I can’t escape the feeling that I am currently just one of the luckiest of America’s netless tightrope walkers. I don’t want to rely on luck for the rest of my life. I also have a beloved sibling who works a more tiring job than I do for about an eighth as much pay. I can help her but I want all my compatriots to have a decent life, not just the handful of people I can personally aid.

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Layman 01.13.18 at 10:50 am

Michael Sullivan: “So basically if you are a median income family in the US, and you save even *reasonably* prudently for retirement, you have a fairly high probability of accumulating 500k-1mil by age 65. The fact that only 10% of households do that is a problem, but it is as much a problem of education, culture and default systems as it is money.”

Well, it could be that (as you say) they’re stupid, or it could be that there is something wrong with your analysis. Examine, for example, your assumption that the household starts its employment career already making the median income, that it remains at the median income for 40 years, and nothing ever interrupts that continuum. Plausible? Who are all those people making less than the median wage, Martians?

I spent 5 years in the Army, as an enlisted man, from 1981 to 1986. My wage at that time was about $600 per month, including the various stipends the military tosses in in addition to the base pay. So that’s $7200 per year for a family of 3. Or, roughly, $21,000 in today’s dollars. How much do you imagine I was saving at that time? As I recall, my platoon sergeant enrolled me in food stamps, and every thanksgiving a local charity provided me and my fellow married soldiers with a food basket.

I got my first adult post-military job in 1986, working in a data center. I was paid about $1100 per month, or $26,000 per year in today’s dollars; for the first time in my life above the poverty level. I thought I’d died and gone to heaven, but half of that income went to rent, and my child was now in school, and we needed two cars to manage life, and so on. Again, what do you imagine I was saving at that time?

It’s hard now to recall when I reached the median income, but if I had to guess, I’d say I was well over thirty. And I was lucky: Ten years later, after a complicated series of job changes, mergers, etc, I took over running the IT shop that included that data center, and half the operators I’d worked with were still in those same jobs.

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Layman 01.13.18 at 10:54 am

Michael Sullivan: “The people who don’t have 500k in investments, either have social security and pensions and home equity worth that much or close, or they are in for a rude awakening when it comes time to retire.”

Answer: B

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engels 01.13.18 at 2:21 pm

Not a single comment here by someone who considers themselves ‘rich’.

Do you also troll feminist forums pointing out that noone calling for an end to patriarchy is male? Or Indian independence meetings complaining that noone there is British?

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Michael Sullivan 01.14.18 at 3:43 am

Of course, no large group of people earns the median income every single year of their lives, but if it is the *median* then in any given year 50% of households are above it and below it, including a lot of households with unemployed or disabled, or poorly employed workers. The median household over a 40 year working life probably doesn’t earn the median income every year, but they likely earn *more* about as often as they earn less, and over a lifetime, roughly 50% of households probably earn more on average for their working life and roughly 50% less.

Yes, a lot of people are struggling and are well below median income. 50% are below it every year. We’re talking about at what point we should place a *limit*, or at least something like revenue maximizing taxation. Can it possibly be reasonable to have that limit exclude people who simply want to be able to retire and live like the median working family does? We define anyone who can retire as rich?

Because if someone today at 65 wants to retire, they pretty much need 500k to live at something approximating the median lifestyle. It’s true that a huge number of people don’t have that (though it isn’t anywhere near 90% if you count the present value of ss and pension benefits and home equity), but that doesn’t make the people who have it *rich*. It’s enough to support a middle class retirement, and you literally *can’t* support a middle class retirement without that much, unless someone *else* has done some of the saving for you (government or employer). Explain to me how someone can live at the level of a median income household while retired without accumulating ~500k or more at some point? Or waiting until you are at death’s door to stop working.

Are you really willing to say that anyone who can retire is “rich” to the point where it is a positive good to confiscate some of their wealth?

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J-D 01.14.18 at 5:15 am

Like “lifestyles of the ludicrously wealthy”, I don’t really see the point except as a derail.

I concur. If the case in favour of a more progressive tax system is strong, it isn’t made weaker if it turns out that it’s not supported by the rich, just as if the case is weak, it isn’t made stronger if it turns out that it is supported by the rich.

But since the question has been asked and answered, you can add me as an example of sombody who’s rich and who is in favour of a more progressive tax system.

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J-D 01.14.18 at 6:34 am

Dipper
International development assistance is provided both through non-government channels and through government channels. That’s true both for donor countries with less progressive taxation systems and those with more progressive taxation systems; both for countries with more egalitarian distributions of wealth and for those with less egalitarian distributions of wealth. Therefore it seems unlikely in the extreme that making the taxation system more progressive and the distribution of wealth more egalitarian would result in the elimination of non-government development assistance. It is possible, I suppose, that it would result in a reduction in non-government development assistance, but I’m not convinced of it; it seems like the sort of thing it would be possible to check by looking at the actual records of various donor countries. In any case, if there is a decrease in non-government assistance and an increase in government assistance, I don’t get the basis for concluding that there would an increase in corruption and inefficiency. I am not fool enough to believe that government assistance is automatically less corrupt and more efficient, but I also don’t get the basis for concluding that non-government assistance is less corrupt and more efficient; corruption and inefficiency are things that affect both government and non-government sectors.

Technological research and development is also something that takes place both in government and in non-government sectors. In both sectors, it is not the case that the people who pursue it are motivated solely or overwhelmingly by the prospect of financial return. It is therefore unlikely in the extreme that reducing the financial incentives would eliminate it entirely. It is possible, although again not clearly demonstrated, that a more progressive tax system and a more egalitarian distribution of wealth would result in a shift in the balance, with the private sector share of research and development decreasing and a corresponding increase in the public sector share; but even if that did happen, it’s not demonstrated that the outcomes would be clearly worse as a result.

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