A volume on Wealth, and a public lecture on having too much of it

If I understand you correctly (IANAP), this is exemplified by sports leagues that (1) restrict the amount of money that a team can spend on its players and (2) make sure that the worst-off team has an advantage in acquiring new talent.

I have a trivial nitpick, or perhaps a failure of comprehension. The formula adds Yg, all income, to A, the annuitized value of all property, which appears to count investment income twice.

As to the incentive issue, it would seem reasonable to apply the revenue maximizing tax rate only up to some limit, above which an increasing portion would be confiscated. No one is infinitely productive; above a certain level it ought to be presumed that one’s returns are predatory, subtracting from the common welfare.

Executive compensation in the U.S. clearly exceeds the limit of general utility, since CEO’s and venture capitalists routinely reap enormous rewards for destroying companies, not all of which merited destruction.

The disparity in pay between American and Eurasian executives and the comparative performance of their companies allows us to estimate both the effectiveness of incentive compensation and what the limit ought to be.

I find myself fascinated by the unmet needs argument. OK, so tax revenues could be used to meet some of these needs. So, if some have surplus, tax them to meet the needs.

And yet one of the ways in which to gain surplus is to meet the unmet needs of others. Sure, there are other ways to get rich, inheritance, rent seeking, flat out thieving, politics – to the extent those two differ – but even a cursory glance at the rich lists shows us that between some and a majority of those with vast surplus did actually gain that by meeting unmet needs.

Zuckerberg is already mentioned here for example. And there are at least some hundreds of millions of poor people in the poor world using Facebook as their primary means of distance communication. For free. Which seems a pretty good meeting of needs.

And we do have this general thought that the ability to gain surplus is what motivates – at least some – to try to meet needs. The benevolence of the brewer also comes to mind.

Which leads to an awkward thought. If our justification is the ability to meet needs then isn’t the surplus gained by meeting needs in some way different from that gained by other means?

Would a wealth maximum require that he sell most of his share in the company to . . . somebody, and thus relinquish control? Or would it just confiscate most of the dividend income from that stock?

Brett, to answer your question it might do you good to ponder the truism that a sale involves by its nature a swapping of two things of nominally-equal value.

Now. Re-read carefully exactly what’s being proposed. Note what impact a swap of two equal-valued things will have on the extent of the thing that’s being proposed to be limited.

Note that nothing I have written is stuff you can plausibly claim to be unaware of. You have all you should need to answer your own question.

“Brett, to answer your question it might do you good to ponder the truism that a sale involves by its nature a swapping of two things of nominally-equal value. ”

This is only true in a perfectly liquid market. An ounce of gold may be worth $1000 on the open market, but that doesn’t mean I could find a buyer or buyers for 10 million ounces at that rate.

“I agree that the fact that wealth is in part in companies and not all in the hands of individuals makes moving towards a society (let alone world) without superrich more difficult, and this is something I need to think hard about in the near future.”

Actually I think this ought to make the whole thing easier. Wealth which is tied up in shares of a company – or, as is more likely, shares in a mutual fund which in turn is holding shares in other funds and companies – is wealth one isn’t doing anything with. One isn’t using it to eat, or to pay the rent, or to buy clothing, or medical care, or to buy transportation, or to pay for education. It is theoretical wealth, a notion of wealth that never becomes real for the user, and I think you’ll find that the overwhelming majority of the super-rich have wealth like this, wealth they never enjoy, wealth they will never succeed in consuming no matter how hard they try. In that sense, it is wealth they don’t have at all, and will never miss when you tax it away from them.

“Does anyone reading this have wealth that exceeds the limits they would want?”

Sure. Why do you ask?

@Layman

One isn’t using it to eat, or to pay the rent, or to buy clothing, or medical care, or to buy transportation, or to pay for education.

Unless it’s your pension fund.

“Would he object if his claims on future income were limited to what he could consume? Very probably. But how much moral or social weight should his objections have?”

Yes, precisely.

a failure to recognize how the wealth is created

We have that convo if you want Joe. Who created the value Gates/Zuck/Bezos et al leech off? ‘The people who produce the software’, ‘the people who use it (thus contributing unpaid to the lucrative behavioural data hoard)’, ‘workers in productive industries whose value Silicon Valley is able to syphon off through its strategic position as intermediary’, and ‘publically funded institutions who contributed most of the underlying technology’ all seem like promising starting points.

the answer is zero

Are you a monk?

#24 No, a socialist *stands back while NK’s head explodes*

“Why couldn’t the individual who made the money make that decision to directly fund charity or social organization provided the wealth was in fact distributed? ”

I’ll just point out that it was the charities and social organizations who were the most fervently behind Social Security and other public benefits programs, precisely because they knew full well that private donations would only ever cover a tiny fraction of the need.

Nothing in Facebook couldn’t have readily been done by someone else; the value of Facebook lies in network effects: people use it because other people use it. Facebook is extracting rent on that network.

Windows *was* pretty much done by someone else; the value of Microsoft lies in network effects: people use Windows because developers produce lots of apps for it, who do so because lots of people use Windows, and so on; and because Office formats are the “standard”; and so on. Microsoft is extracting rent on that network.

Amazon is extracting rent on buyers and sellers who have fewer and fewer places to go; Uber’s strategy is to undercut taxi companies in cities by selling rides for less than they cost, until they have a monopoly, and can extract rent on it. Google is extracting rent on their near-monopoly on search.

Rockefeller, of course, acquired a monopoly and extracted rent from it, as did Vanderbilt.

Carnegie, H. Ross Perot, and others grew wealthy via corruption: lucrative contracts or monopolies obtained via corrupt government; those rich Russians got their wealth via corruption.

Fred Koch grew wealthy doing business with Hitler and Stalin; other companies are well-known to have had lucrative contracts with the Nazis.

Sheldon Adelson’s wealth comes from exploiting gambling addicts.

So great wealth generally comes from: rent extraction on monopolies, corruption, and doing business with evil. Not quite “every great fortune is founded on a great crime”, but close.

Layman:

Wealth which is tied up in shares of a company – or, as is more likely, shares in a mutual fund which in turn is holding shares in other funds and companies – is wealth one isn’t doing anything with. One isn’t using it to eat, or to pay the rent, or to buy clothing, or medical care, or to buy transportation, or to pay for education. It is theoretical wealth, a notion of wealth that never becomes real for the user,

If the company or mutual fund is paying dividends, the owners of the shares might well be using those dividends for those purposes.

I’m didn’t ‘hurl around insults’. Your comment was a stupid drive-by which misunderstands the definition of private property and I don’t need to have ‘socialism’ libsplained to me, thanks.

Trader Joe: “…we might both rather a world with different property rights, but in this one they exist and wealth tends to accumulate to those that have them…”

But this is explicitly a discussion about whether we ought to have different property rights than the ones we have now, so I don’t think you can rebut a comment by ignoring that premise and taking refuge in the property rights we have now.

Apologies for hijacking the thread. It’s a very interesting idea and seems related to some of Corbyn’s proposals.

In my view, most existing wealth is fictitous wealth, and is just a projection on cashflows, so the accumulation of wealth is a spurious problem, it’s just a consequence of low wages. I’ll explain my point with an example:

Suppose that country A’s product is entirely made of agricultural products such as potatoes, carrots etc., and suppose that there are some landlords and some sharecroppers.
In this situation, wealth is mostly represented by land, but what is the value of land? The value of land depends on how much landlords pump it up, which depends on 1) how much money they have and 2) whether they want to accumulate wealth or spend in personal consumption.

How much money do the landloerds have? on aggregate it depends on how much the sharecroppers take home; on the other hand landlord’s willingness to save could be described as a discount rate. So for example if sharecroppers take home 75% of the products, and landlords have a 5% discount rate, the total value of land will be 500, or five times the annual product.

But this number doesn’t represent an amount of “real” wealth, it’s not a stockpile of carrots, potatoes etc. equal to 5 years of product, but just a notional value that depends on the wage share and the discount rate.
If the landlords become more thrifty, they tend to pump up the value of land, the discount rate falls say from 5% to 4%, ant the value of land goes up from 500 to 625, but no product was really saved or accumulated. A similar effect happens if the wage share falls or rises.

In recent times, whe had a fall in the wage share, and also a fall in the interest rate (that we can take as a measure of the discount rate on wealth), so the wealth to income ratio necessariously rises, and as wealth is more4 unevenly distributed than income this makes “inequality” skyrocket.

But in reality the main problem is the falling wage share, if the wage share rises the “excess wealth” will also largely disappear.

PS: the fact that most wealth is fictitious wealth should be taken as a critique of the idea that capitalists, even small ones, accumulate the fruits of their labor.
PPS: The idea of limiting the wealth of the top 0,1%, but then leaving the remaining distribution as it is, as the apotheosis of “small burgoise” mindset.

The structures of which they are an inevitable part do enable greater production.

…compared to alternative structures that obtained in the past.

Not necessarily compared to alternative structures that might obtain in the future (unless you’re Dr Pangloss…)

Conventional economics has always had a panglossian subtext and conceptual confusion about the nature of wealth is at the core of that tendentious narrative of an economy driven by public sacrifice and private virtue. It is so embedded as conventional in our discourse that it is hard to see how to oppose it effectively; one is almost compelled to make concessions to its premise that wealth is always and everywhere an unalloyed good thing, which we are wrong to envy and should all want more of in the world.

The deeper truth, it seems to me, is: wealth is power and nothing more than that in an ontological sense.

Ownership of property, accounting for cash flows, economic rents — these are simply corollaries to the thesis, wealth is power. And, power is the political capacity to organize social cooperation, productively for the general welfare or otherwise.

Whether power is a good thing depends pretty obviously on its “distribution”, but in complicated ways that involve the ability to negotiate, bargain and resist on the one hand as well as the ability to choose achievable objectives wisely and with foresight. When we think about the distribution of power and contrast the problems that immediately come to mind with the economist’s denatured distribution of income and wealth, we begin to get some hint of the kind of scam economists run, when they wring their hands over some highly abstract “inequality” and talk of redistribution or predistribution, as if the operations of power can be distilled out of the economy by an imaginary system markets before we even think about political economy as a system.

I think engels had it exactly right, when he identified economic rents as the funding source of wealth. Identifying wealth with the value attributed to capital as an input to production processes and increasing production to increasing wealth, as the capital stock accumulates — these narratives are persuasive fairy tales that reinforce the large panglossian narrative of the economy as a system driven by the prime mover of moral virtue.

That fairy tale is not an accurate description of the institutional mechanics in the actual political economy. In the real world, sunk-cost investments made in the past have no inherent call on future income streams at all. Logically, the claims made for a sunk-cost can be ignored (and logically, should be ignored) in any forward-looking bargaining or decision-making. They are not ignored, because political power can be exercised to secure funding streams in excess of what is needed to keep dedicated capital stock in productive use (and counterfactually, political power can be exercised as discretion regarding excluding land and capital stock from particular use — no squatters! no right to repair! legalized resale price maintenance! intellectual property!) Business schools train aspiring professional managers and entrepreneurs to find “a business model,” which is polite language for constructing a situation in which the political power is available from some combination of property rights, public concessions, and “market power” to secure economic rents on sunk cost investments after the fact of those investments.

What MisterMr says about wealth being a fiction strikes me as an important truth. We inhabit a money economy, which has been thoroughly financialized. Economists laboring on the fairy tale insist that money is maya, a veil of illusion, which we should endeavor to penetrate or strip away. It reminds me a bit of Neo taking the red pill to discover the ugly reality beneath the illusion of The Matrix, except that for the economists, what they suppose to be the underlying reality is idealized, while the surface reality is supposedly full of unnecessary suffering and mistaken policy. (If only workers would understand how much everyone would benefit if they just took a paycut.)

Money is a fiction, and an often highly useful fiction. In the real economy sans money and debt, there’s really not much scope for saving and investing current effort without money to account for investment and “store” value. We only exist, in reality, in the current moment, always the current moment. Current efforts are always a use it or lose it proposition. Any anticipation of the future is necessarily an exercise in imaginative fiction. Money lets us calculate on and do contingent deals with each other concerning an imagined future; money creates a bridge into the future for social cooperation to cross. Money, interweaved with debt and property rights and contracts, is that fictional bridge, which the organization of social cooperation is then driven across.

Here’s the thing about financial wealth: the only economic function for purely financial wealth is as insurance. If you have big piles of money, you earn a return on your big piles of money by renting it out, so to speak, in the form of insurance. Someone else’s prospective but unrealized misfortune is your gold mine. Or, if you really know how to work it, someone else’s current misfortune can be “ameliorated” into their perpetual immiseration (debt peonage, credit card debt, student loans, payday lending). And, yes, socializing insurance as cooperative banking, mutual insurance and finance or publicly (tax-financed) health care and pensions has some pretty obvious potential to improve the general welfare in a broad range of circumstances by substituting a broader construction of wealth (notice that that is what a credit union or a non-profit HMO is) for a high concentration of wealth constructed by the rapacious activity of CEOs leveraging a high concentration of political power to construct a higher concentration of wealth to construct a higher concentration of power to construct . . . . Predistribution, indeed.

Wealth conceived of as power helps to make clearer than wealth as the capital stock of productive virtue the ways in which wealth is inherently problematic, prone to parasitism and the like, ways made worse by a concentration of wealth and power.

Wealth as power still leaves open an ambivalence about what power — the political capacity to organize social cooperation — can accomplish. I don’t imagine an ideal economy without power. My view of an “ideal” economy would be more of a “mix your poisons” prescription, lots of power widely distributed with means of low-cost resolution of conflict and contention. While I do not think it makes sense to attribute Bill Gates’ success with Windows or John D Rockefeller’s with Standard Oil to virtue in the product, the business idea or its author, per se, I also do not entirely discount the social value of their being able to accomplish something. A paralyzed economy is not my idea of a socialist paradise.

Conceiving of wealth as power, my idea of limits would center on developing a concept for containing the hubris of power. Corruption, too, as equity demands, but more globally, hubris. Do less, because without being able to know the externalized consequences in detail, one knows necessarily there must be externalized consequences, intended or not. In terms of global resource limits, Quiggin’s notion that the base problem might be the assimilative capacity of the environment to absorb the exhaust and entropy entailed by our activities might be a useful way to begin a sketch. Sustainable cannot realistically be conceived of as virtue reinvented unless it also comes with enlightened understanding of the need to limit all we do, in the interests of limiting the waste necessarily attendant on doing anything at all, in an uncertain world in which we necessarily do not know or control everything, even to a modest degree.

bruce wilder 05.25.17 at 7:34 pm

I think William Timberman has made this point several times, but it is worth repeating:

Write the book, dammit. I know of no one who expresses these ideas better.