Where do people put the riches-line?

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…

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.

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

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.

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.

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.

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.

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.

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.

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.”

– 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?

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.

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?”

”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”?

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.

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.

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.

– 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”.

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’.

#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.

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.

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”.

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.

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.)

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?

@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?

Thanks for your comments, nastywoman.

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.

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.

Thanks J-D, your comment clarifies everything.

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,

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

#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).

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).

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.

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.

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.

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.

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.]

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.

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.

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.

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.

– 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?

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.

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.

@ 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.

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?

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.

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.

“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

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.

@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/

– 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”.

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.

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.

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.

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

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?

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.