Thomas Piketty lays it all out in "Capital in the 21st Century"
Basically he compares two kinds of growth rates : the growth rate of the 'real' economy and the growth rate of wealth itself. You need the wealth rate to be low enough that rich people want to invest some of it in the real world, not leave it in the bank.
If you do tax the rich, they do very well and you also have money to pay for things like education, roads, affordable housing, medical services, scientific research .. which benefit all and lubricate the general economic market.
If you dont tax the rich, you end up with a gilded age of emperors and kings or a few robber barrons, a small rich coterie around them and the gawping masses of poor eeking it out.
Postwar 70s and 80s were a unusual period of relative lower-inequality, in which we had money in the real economy to develop things.
Garys Economics made an interesting point that inequality _itself_ is a problem - because the actual real value of the world remaining the same [ goods, energy available, land, workers, housing, technology ], when there is higher inequality, then the poor are losing a proportion of that real wealth to the rich. Extreme inequality itself starves almost all the population of a share of real wealth, for them to use their skills effectively - renovate a house, invest in stocks, get a masters degree, do a garage project, travel, have kids, install solar panels etc.
> Basically he compares two kinds of growth rates : the growth rate of the 'real' economy and the growth rate of wealth itself. You need the wealth rate to be low enough that rich people want to invest some of it in the real world, not leave it in the bank.
I think your second sentence, and thus your explanation of Piketty's thesis, is wrong. Piketty's point was that if wealth grows faster than the economy, the total share of all assets held by the wealthy will grow and grow. I don't think he was concerned about the choice to invest 'in the real world'. In any case it's not clear what 'not investing in the real world' means or if it's meaningful. Any return on capital either comes from direct investment or from lending to someone else who will invest directly. There is a fundamental accounting equation which proves that all net saving is net investment.
> Any return on capital either comes from direct investment or from lending to someone else who will invest directly.
Is this true? I'm not saying it's a huge portion of all saving, but holding wealth in things like precious metals or greater fool investments like Bitcoin doesn't seem like "investing" in anything productive.
If you bury gold bars that you mined yourself in your backyard, or you bury your salary in cash there straight from your paycheck, then you remove money from the system and thus not invest it. And effectively damage the economy, mainly via lack of liquidity.
It's hard making your capital inaccessible to the economy, but it's easy to not get the benefits of that working capital.
For instance, any time you park your money in a regular bank account or lend it at a suboptimal rate, you don't get some of the benefits.
No it isn't true. Holding money as money in a bank account is also not investing unless you think that providing liquidity to a bank is a useful investment (liquidity they can trivially access from the central bank, albeit at a slightly less desirable rate). A bank deposit is a liability to the bank, not something that can be invested.
No, the deposit is a liability with a matching asset that comes with it. The asset is needed to balance the asset. They certainly don't lend it out to other customers, which always happens through new money creation. They do buy short duration government bonds with it because they're not stupid and can get a better return than on reserves, and bonds are acceptably liquid. Nothing they do can be construed as investment. Savings really are savings and are effectively removed from the economy.
You seem very confused about several different points here.
1. Deposits often fund loans. If deposits were never used to fund loans as you describe, most banks would have at least as many cash or HQLAs as they do deposit liabilities. Check any deposit-taking bank's balance sheet to see that this is not the case.
2. If banks do buy government bonds with deposits, that still does not negate the funds being invested. The government now has the money and will spend it. Again, you can quickly check the governments do not hold piles of cash and the vast majority of the money that they borrow is spent on their activities.
3. It is axiomatically untrue that 'savings are removed from the economy'. Savings means that someone consumes less than they produce. That production must either be consumed by someone else, or add to the stock of capital. It cannot disappear.
It’s been a while since I took a monetary theory class, but if people are interested in your first point they should look into fractional-reserve banking.
Essentially banks are only required to have a fraction of their deposit liabilities as liquid assets and can loan out the rest. If I remember correctly, this is actually how a substantial amount of money is created in the US and likely most of the world. If you deposit $100, a bank could make a $1000 loan assuming the reserve rate is 10%, which leads to an increase in the money supply of $900.
Money supply is definitely not the same as the size of the economy, but it is incorrect to say that bank deposits are just sitting stagnant. Banks are quite active with those deposits - how else would bankers make all that money!
Bankers make money by creating loans, which are subject to regulatory requirements imposed largely through the adoption of Basel III. The reason they take deposits is because they are the cheapest form of liquidity. The certainly don't make money lending out deposits, whatever that means. Many countries don't even have reserve requirements, which rather highlights the flaw in the fractional reserve model.
I don't think you know what 'liquidity' means, but if you do you are incorrect about it here. Deposits provide funding, not liquidity. Banks certainly do use deposits to fund loans.
It is not true that most countries do not have reserve requirements.
I think before commenting further you need to take a deep dive into actual banking operations, because you really are wide of the mark. I posted a few links in the other post local to this one that might help. I also suggest reading the Basel III accords (or at least a summary) to understand the role of liquidity in banking.
There's not much point me discussing this further with your since you're so wrong. Take care and good luck with your enquiries.
I do think that your original argument that bank deposits don’t contribute to economic growth is wrong though. As you point out, they are a cheap form of liquidity for lenders. I think you’d agree that loans play a key role in economic growth.
The ability of banks to lend is limited by the availability of credit worthy borrowers, not liquidity. Banks will always get the necessary liquidity from the central bank (assuming the system is working as intended), but prefer deposits because they are cheaper than whatever is offered by the CB. Inter-bank lending is an alternative preferred option if insufficient deposits are available.
These deposits can move between banks along with an associated asset.
Balance sheets always balance. Most of the balancing asset against a deposit is a loan. This is how banks make money and arguably their purpose. You can see the balance sheet of HSBC here (page 12):
https://www.hsbc.com/-/files/hsbc/investors/hsbc-results/202...
It's clear that the majority of their assets are loans as expected. Then a fair chunk of reserves which reflects transfers from other banks (which hold a corresponding loan asset) or payments from the government. Finally there's a smallish quantity of financial investments that includes government bonds.
Bonds are just a floating price asset swap for reserves so the reserves must exist (have been spent) before the bond sale can happen. That is, governments don't borrow money until after the spend. In the case of the UK, this is shown in the following paper:
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4890683
You seem to be of the understanding that there's a one to one correspondence between stuff and money, which a moments consideration of the endogenous nature of money (as described into BoE paper) would highlight as flawed. If you're suggesting something else by your point that savings imply a drop in consumption, please do clarify.
It feels like your understanding comes from an economics course, which generally bears no relation to actual monetary operations and understanding, rather reflecting the particular philosophical bent of the economic school.
Thanks, I know and agree that loans create deposits. Sadly this underrated fact seems to have thrown you a bit, to the point where a lot of what you say is just nonsense.
What does this mean? "Bonds are just a floating price asset swap for reserves so the reserves must exist (have been spent) before the bond sale can happen."
Are you able to explain what your understanding of liquidity is?
Do you know what it means for loans to be funded by deposits?
Do you know the origin of the equation between investments and savings and how it is justified?
You are giving the exact impression of someone who used to believe a flawed theory of money creation, watched the Netflix documentary about bank money and has lost it a little bit.
> No, the deposit is a liability with a matching asset that comes with it. The asset is needed to balance the asset. They certainly don't lend it out to other customers
When a customer (customer A) deposits $10 of cash at a bank, the bank has a new $10 asset (the cash), and a new $10 liability (the deposit it owes to the customer).
If another customer (customer B) then comes in and asks for some cash in the form of a loan, the bank can loan that customer the $10 cash, at which point the bank goes from having a $10 asset in the form of cash, to a $10 asset in the form of an outstanding loan.
This new asset is less liquid than the cash, but the bank's balance sheet still balances.
> which always happens through new money creation
You are correct here - bank lending is the process through which the vast majority of money is created. Before the loan, customer A thinks they have $10. After the loan, customer A and customer B both think they have $10. In this sense, $10 of new money is created.
Interest rates moderate the rate at which banks lend and the rate at which money is created, and the Central Bank acts as one of the most important price-setters in the economy.
> They do buy short duration government bonds with it because they're not stupid and can get a better return than on reserves, and bonds are acceptably liquid. Nothing they do can be construed as investment. Savings really are savings and are effectively removed from the economy.
Even if you believe that banks only buy short duration government bonds (which is provably not the case[1]), this is still a form of lending, as it effectively finances government borrowing, and the Government can spend their borrowed money as they see fit (such as for building infrastructure).
Even if you try to tax the riches, they have billions of ways to evade it. The tax laws are so complicated for a reason. Here in Australia, there were cases that some individuals that earned just about A$1M pa., and they paid ~A$980K to companies registered in Virgin Islands etc. for managing tax affairs. Such arrangement knocked down their taxable income to ~A$19K, and thus they paid probably a couple of dollars taxes if not not even a dime. Eye-opening, right? But those were not those super rich ones. You can just imagine what those super rich people can do. So the burden of the tax would be on mid-income people. I would expect the same in US.
If there were political will to tax the rich then you'd have to, in addition to changing tax law (obviously), fund IRS investigations to ensure the taxes are actually collected. Throwing up your arms and saying "well we can't tax the rich, they're too powerful and wily, and will easily commit tax fraud to evade those taxes, and in actuality you'll bring in less money" is exactly the weak attitude that stalls efforts to fund vital services. If you think people will commit tax evasion, then put more resources into investigating tax evasion. Historically, money spent recovering taxes has yielded more than the cost of said investigations.
> Throwing up your arms and saying "well we can't tax the rich, they're too powerful and wily, and will easily commit tax fraud to evade those taxes, and in actuality you'll bring in less money" is exactly the weak attitude that stalls efforts to fund vital services.
It goes further than that, it is the exact argument made by wealthy people as to why we shouldn't tax them more aggressively. Parroting that argument is ludicrous unless you're considerably wealthy yourself.
Those loopholes were by design, complicated enough to prevent most people like us to take advantage of it but will allow those who can afford to evade lots. I'm not sure if people is just naive or playing dumb.
It is extremely difficult because you not only need to do it on a per-country level, but globally. Otherwise you just punish foreign companies that genuinely invest in a country with stricter tax laws (and most will just choose another country, just like it's happening in Europe). And ultimately, it depends on the will of the American administration - and they can be extremely bullish about imposing their laws on smaller countries, sometimes even using their military advantage.
> fund IRS investigations to ensure the taxes are actually collected.
Even people who want to tax the rich are skeptical about empowering / funding the IRS because there are many studies showing that the IRS disproportionately audits the poor.
If that’s true, then why would more funding help new enforcement against the rich rather than multiplying the current problem? Generally cash/support fixes material resource issues but cannot fix policy issues
IRS enforces against the poor because it is easier and they have been directed that way. It is possible to increase enforcement, direct where that enforcement goes, and change the law so that it is easier to enforce against the rich. Another would be simplify the law for to make audits for poor unnecessary and leave rich fewer places to hide.
We have gotten used to Congress being dysfunctional and not passing laws that we think the current laws are some unchangeable state.
Sounds like we agree then that it’s important to change policy first before dumping more resources on a malfunctioning org and hoping for the best. But parent mentions “funding investigations” as a cure.. my point is just that there’s no indication that this makes things better, and might actually make them worse.
I do agree that changing policy is a separate, yet complimentary, step. But maybe the poor are disproportionately audited because the IRS doesn't have the funding to effectively target the rich and succeed? Maybe with better funding, they could successfully extract more tax dollars from the rich, incearsing the ROI of funding the agency?
I don't think further funding the agency is a completely nutty idea. Although if you truly believe the agency is broken, and that being broken isn't related to their funding, then I could understand your perspective. I lean more towards the idea that at least some, maybe even most, of the issues they have might be due to a lack of funding. That makes more sense to me than most of the criticisms I've heard of the IRS, which seem to mostly be on partisan idealism framed as otherwise.
My point was that Tax Laws were deliberately complicated to allow some people to evade taxes. If you put that into consideration, you will find it's a lot easier to understand the status quo. Again, what you think or what I think do not matter after all.
It matters completely. Congress makes and changnes tax codes, people vote in congress. People need to remember they are the ones being served and they are in control. Absolving themselves of their representative's choices is the start of the downfall of the system.
1. Gary’s arguments for taxing the rich aren’t about taxing income. It’s about taxing wealth.
2. By his argument, most of the wealth are immovable: the rich disproportionately owns actual, physical real estates, and stocks of actual companies. As these assets are based in the country, you could tax right at the source.
For the really rich, I agree about the usefulness of taxing wealth.
The problem is that such a tax must be strongly progressive, or it may affect the poor much more than the rich.
For instance, I have seen cases in some countries, where after the discussions about the usefulness of such taxes for wealth, the result was the establishing of some high taxes on property, whose only effects were that e.g. someone who were jobless for some time might be forced to sell their house, and for a disadvantageous price, for not having with what to pay the property tax, thus becoming both jobless and homeless, or someone poor who inherited a house might be forced to sell it for a disadvantageous price, for not being able to pay the inheritance tax.
The result of this kind of misguided tax was an even greater transfer of wealth from the poor to the rich.
Yes, the only thing that genuinely scares the rich is wealth taxes.
It is next to impossible to hide the fact that someone owns something like real estate
In addition to real estate I might consider other property such as bank accounts, at least above a certain threshold. Presumably that cash has to be invested somewhere (or should be encouraged to do so)
If we could get a real wealth tax, I would do away with income taxes like some states have done (i.e. Texas)
>It is next to impossible to hide the fact that someone owns something like real estate
Real estate can already be taxed via property taxes. Unrealized gains in securities can't be taxed the same way as their value is much more volatile, with potentially large daily swings. Texas makes up for the lack of income taxes with relatively high property taxes.
>In addition to real estate I might consider other property such as bank accounts, at least above a certain threshold.
Interest from savings accounts is already taxed. The wealthy don't hoard their wealth in bank accounts though.
While it doesn't make sense to tax unrealized gains, they could be taxed if they are used as the basis for a loan. Loans on unrealized gains are one of the main ways the wealthy are able to live lavishly while paying very low effective tax rates.
It seems fair that you shouldn't be able to have it both ways—if you are getting any financial benefit from an asset, including a loan, there's a pretty strong argument that you yourself are "realizing" that value.
Sure, but everyone pays those taxes. If we are talking about inequality and the wealthy having ways to get out of (or better said, drastically reduce/defer) taxes that everyone else has to pay—i.e. income tax—I think loans on unrealized assets is probably the first thing to look at.
Banks are also taxed on the interest from the loans. Loans backed by assets are not just free untaxed money as you seem to think they are. If an entity is unable make the payment on a bank loan, then they would be subject to having their collateral seized, and the bank would then eventually sell the assets, which would be subject to capital gains.
I think it would be more realistic to heavily tax inheritance and re-evaluate trust based loopholes.
> Loans backed by assets are not just free untaxed money as you seem to think they are.
I mean, you’re clearly moving the goalposts here. We’re talking about tax on unrealized gains for the wealthy, not sales tax, property tax, or taxes on the bank.
If you’re able to keep taking out new loans to pay off the old loans until you die, with an appreciating “unrealized” asset as collateral, then yes all that money is effectively tax free if we’re talking about income tax and capital gains.
I believe the previous poster was arguing that taxation still exists at a macro level, i.e. money is sucked out of the economy. It doesn’t matter so much who paid the taxes. The wealthy pay the interest.
Part of me wonders if doubling down on taxing transactions (which tariffs is categorically) can thus work. It seems like an elegant way to avoid having to deal with wealth vs income.
>The property or goods purchased with a loan are subject to tax.
There is no such federal tax in the USA.
And it is just ludicrous to suggest that stock holdings cannot be subject to a wealth tax. The value of stock holdings are established all the time when the wealthy provide their net worth for their business dealings.
The IRS requires me to submit the value of my IRA holdings as of the end of the year to determine how much will be taxed the next year (by forcing me to withdraw a dollar amount - determined by the asset value of my holdings - which vary minute by minute when the markets are open). So, I guess it's ok for the IRS to measure my wealth each year to enable the IRS to collect a tax on that wealth - but some how you say that's impossible to do for billionaires?
I really don't see why "equity is volatile" is some insurmountable problem. We see the same exact "problem" show up with day trading, where it is possible to accumulate a lot of taxable gains and end up with less than you owe if you don't sock away the money to pay for taxes at the time of locking in the gains.
If an equity is valued at $X on some date when we lock in the value for a wealth tax or a tax on unrealized gains then sell enough of your equities on that date to pay for the tax and store that in a zero-risk asset. This can easily be done automatically.
Unrealized gains can be taxed - for example, Ireland has a Deemed Disposal tax on ETF investments, where after 8 years, any gains are considered to have been realized and tax is due (even if no sale has taken place)
Deemed disposal subject ETFs can be taxed under an eight year exit tax scheme, but this can be avoided by simply investing in US domiciled ETFs or individual stocks.
> Yes, the only thing that genuinely scares the rich is wealth taxes
Why though? We’ve already established the end game if we don’t do this. It’s hard to imagine society willingly regressing back to feudalism. What we likely need is a sensible plan which gradually adopts wealth tax rather than a radical step change.
I'm scared of 2% wealth taxes (as discussed in New Zealand) because I believe that will take 100% of retirement savings over time. And I'm no multimillionaire. Say portfolio returns 6% and drawdown(spending) is 4% then 2% takes 100% of gains.
The 1% or 2% figures sound trivial to the voting majority but they really are not trivial. Cue discussion on compounding.
The other issue is Forcing sale of private owned businesses. If you fuck with the incentives to grow a businesses, you will end up with a shitty economy and everybody suffers.
Apart from the obvious 2% * decades = lots (for low growth investments).
I could work to create new high-margin export income for New Zealand: I have the skills. But I don't work because I hate our taxation system: NZ loses.
An economy needs to incentivise everyone to work including the wealthy: otherwise it bombs. It scares me to see people in the US want to introduce features to cripple their most successful economy. I think most workers poorly understand businesses or economic incentives.
We (New Zealanders) are already getting taxed 1.4% on wealth effectively, if your on a tax rate of 30%+ (most people).
Most people just don't know about it. Due to the FIF rules. Any international investments you have get taxed like this (it's not so clear cut, but more or less). The only exceptions are NZ investments and Aussie investments, maybe. There is a tool to check if an aussie share is except from the FIF rules. e.g. Aussie ETFs aren't, even if they invest in only aussie stocks...
So everyone with a Kiwisaver (retirement scheme), aka most people, have large portion invested overseas, and thus are paying the 1.4% p.a.
It also discourages high net worth people from moving to NZ, as they usually have investments outside of NZ, which will get taxed once they move here (after a few years exception).
The small "win" we do get is you can (cost bases) invest up to $50k overseas without the 1.4% FIF rules applying, (though dividends are still taxed). But like no one knows about it, and managed funds can't take advantage of this, so most people don't utilize this, especially not low income people, who generally aren't that well educated on finances.
Don't get me started on our lackluster retirement scheme, Kiwisaver, with near 0 tax incentives, and propping up the housing market prices.
There's heaps more invisible wealth taxes that increase the marginal tax rate by a few percentage points. Rates, Insurance, increased financial liabilities, means testing, unequitable seperations, oodles of time wasted managing money, yadda yadda. And if you want to keep up appearances then the costs skyrocket up.
If you don't have anything then you can avoid certain costs, or sometimes you can get subsidised.
The wealthy also get some financial boosts e.g. house appreciation. And white collar crime has cheap convictions (or you can avoid consequences)
I've never had kiwisaver because I believe in the value of optionality with my own money. I severely hate locked up money. Being able to deploy money has gained me a small house worth of money. The FIF rules are a cunt to manage and Sharsies are SHIT - they've promised to deliver an FIF report but haven't done so.
Interestingly the actual website for Kiwisaver describes it as a "savings scheme". In the US we just have our own national Ponzi scheme, Social Security
I think our Kiwisaver is more like the US's 401k. We also have NZ Super, which you start getting at 65, and isn't asset tested (yet). But most can't live on just NZ Super.
Though some living frugal and have paid off their house, do live within super, even some renters living do make it work, but it's very bare bones.
While our NZ Super isn't asset tested, our residential care subsidy (elderly care) is asset tested, and is very expensive. When you get old and don't die suddenly, then it's likely your assets you've accumulated over the years will be used to pay for your care (though there are some way around it, but not usually cost effective unless you have a large amount of assets).
But, the elder care the govt gives you (if you can't afford it aka no assets), isn't very pleasant, so you really should plan for it while you're working age, and have investments large enough to cover the costs (which most in NZ don't do).
I don't think we have insurance here that covers elder care.
I believe the guys across the ditch (Australia), have a better retirement system setup. While in NZ our Kiwisaver by default contributions are 6% (total. 3% employer, 3% employee), been this since it started just about, while in Aussie, the current min default total is 11%.
Though Aussie's govt supported retirement payments are asset tested, where as they aren't in NZ.
I think having a higher min default is probably best for everyone, as most people don't change from the default.
If you think US Social Security is a "Ponzi scheme" (it is not, by definition), then do you also think all other highly developed nations are running Ponzi schemes because their national pension is paid from current accounts? Something that I see rarely discussed: Most national pension schemes need means testing. If you already have reasonably large savings, investments, or passive income, then you don't need the full amount of national pension. You can receive less. The remaining portion can be redirect to those in greater need. One thing we have learned in economics in the last 10 years, when poorer people receive direct cash payments from govt's, they spend it into the economy as a much greater portion than those wealthier.
Also, the US has 401(k) savings plans. It is pretty similar to Kiwisave.
Not quite. If you are ultra wealthy because you happen to own several large buildings, fleeing the country to avoid taxes is easy. Doing so with you wealth, however, isn’t.
Which is why they will leave with mobile wealth before the act goes into effect, taking away the capital workers use to earn a living. Property taxes on land and fixed structures work well as they cant run away in a practical way.
The means of production is still here, what’s left of it. Lower asset prices will benefit the poor. What should have happened during COVID is the government took a percentage of businesses to the cost of lockdown/furlough (if they were of a certain size) rather than subsidising the asset hoarding class at the expense of workers. Then you give the workers part of these businesses, spend the rest on re-industrialising. It would have caused the biggest economic boom in the UK maybe ever and with all these consumers available to buy things you’d get a lot of investment and some people would use some of this wealth (£1tn in the UK alone, about £15k for every adult and child in the UK) to start small businesses creating an even better economy.
It’s got to be worth a try rather than the disastrous economic policies that got us here.
The US already claims tax dominion (for its citizens) over the whole world. You get the foreign earned income exclusion, and you can also avoid double taxation in many countries that have a tax treaty with the US, but otherwise the default is that you need to report and pay income tax on worldwide income, no matter the source and no matter where you are a resident.
In the same vein, if the US were to implement a wealth tax, the simplest way in terms of enforcement and not creating perverse incentives to shelter wealth outside the country would be to make it international in scope. Yes, people could give up their citizenship, but that's a huge sacrifice which most wealthy people would not want to make at any price, and there's already an exit tax in place for people that do this.
Not totally. The wealthy are incredibly heavily invested in our economy. Take Elon Musk for example. He’s heavily invested in SpaceX, Tesla, and Twitter. If he walks away from the US, Tesla, Twitter, and SpaceX are all still here and can’t easily “run away”. Sure, they can take some “mobile wealth”, but if you are very wealthy you can’t just leave a whole economy (that’s where your wealth is).
> He’s heavily invested in SpaceX, Tesla, and Twitter.
You make it sound as though he put a lot of his own money (somehow obtained from elsewhere) into these companies.
But that's not true at all. It is correct English to say that he is "heavily invested" in these companies in the sense that his wealth is paper wealth based on the perceived value (stock price) of these companies.
But he is not invested in them the way that a typical person has their retirement funds invested in a company or mutual fund.
Elon came here under a similar story. The party in significant power cheers on 'kill the boer [farmer]' ( and 'redistribute' their capital to the poor). He escaped to here. It's admirable he wants to prevent America becoming like South Africa.
The problem with that politics is stagnation. It is hard to move SpaceX and Tesla out of the country, but you don't get new companies in this situations, there will be less competition and, as a consequence, Elon Musk get more power, and there is nothing you could do about this.
Property taxes are a thing. If Joe Dirt has to pay property taxes for the home he shelters in, the wealthy should have to pay property taxes for the shares of a company that they use to secure loans for yachts and Ferraris.
The really great thing about taxing land, is that it can't escape where it is. Capital flight is a risk for taxing other forms of wealth.
And land is something of finite quantity that is actually taken away from the rest of society. Capital is produced, and made, and is not finite like land.
This is one thing that California got really wrong, it should be taxing land heavily, and income less.
Not an economist, but not necessarily. A heavy land tax would discourage buying real estate as an investment vehicle which might help drive prices down (or at least slow the rate of growth). It would also discourage leaving rental units empty.
I’ve always been in favor of a land tax like the Georgist’s describe.
I still think property taxes on stocks should be a thing. Americans pay income taxes from foreign sources, so why shouldn’t the rich also pay the same for overseas investments? Just close the loopholes with simpler tax laws. That could be like saying it isn’t hard to program some feature into software, though, so perhaps not.
Example: “Thou shalt pay 0% of all income and assets up to 20k, 10% to 50k, …, and 95% on up to 20mm.”
> why shouldn’t the rich also pay the same for overseas investments?
They do. US taxes apply to global income. Can you give a specific example where they do not? Please don't write a lazy reply like "move all their assets to a zero tax location in the Carribean." They are still responsible to pay US taxes for any income derived from those offshore investments.
No, look up prop 13, it heavily incentivizes sitting on land and never triggering a valuation reset. It’s a massive wealth transfer from the newcomers (who tend to be younger) to those who’ve lived there longer.
A fix would be if you use unrealized capital to secure a loan, that unrealized capital amount to secure the loan becomes taxable. Of course that would tax people trying to get home equity loans though.
The problem is that people will always probe the tax code for loopholes that weren't considered. It's a cat and mouse game, except the cat is fat and lazy, and gets paid by the mouse.
Eh, an exception for a primary home is common throughout the tax codes and the like. Just saying you realize capital gains on an asset used to secure a loan (unless it's a primary residence) would cover that without being out of step with everything else.
Sure, a billionaire could then use their $143M estate as collateral on a loan to avoid realizing the capital gains, loophole, but since you can only have one primary home, it's a very limited loophole.
I think a more reasonable interpretation might be "the government knows about expensive cars (i.e. that they are registered, have numberplates etc), and so charges some annual tax on the owners of those cars."
Describing wealth tax reasoning with an absurd example of the same reasoning on an individual level is an attempt to get people to understand what wealth taxes are.
The government that is supposed to work for you thinks you have accumulated too much stuff and is trying to make it legal to take a percentage of your physical wealth annually.
You only accumulated and maintain the wealth because of the government. Without the government and the economic system it cultivates, you’d never have it.
>You only accumulated and maintain the wealth because of the government
This is simplistic nonsense. No, the majority of wealthy people didn't accumulate their wealth because high and mighty lord government willed it into their existence. They did it within a system of laws and regulations that government admittedly does create for fostering such wealth creation. However, this still often requires strenuous effort by these people for their own ends. If it were otherwise, many more people would be rich just by virtue of living under a government. There is a real place for giving people credit for the wealth and capital accumulate, well beyond what government offers.
It's contradictory and absurd to argue that people accumulate wealth because of the government while at the same time arguing that we live in a situation in which we need more government control of people's earnings to prevent oligarchy since government doesn't do enough.
> They did it within a system of laws and regulations that government admittedly does create for fostering such wealth creation. However, this still often requires strenuous effort by these people for their own ends.
You are confusing two things thinking they aren’t highly related but they are. This statement could otherwise be written “government created a flawed system and motivated individuals achieved wealth by taking advantage of that system”. That implies a flawed system was causal. We don’t need bigger government, we need the right government. No one wants to say that those who worked hard - even by benefitting from a flawed government - should not have high wealth, but by your same argument, what did the wealthy children of these individuals do to justify their wealth? Their children? How long do we believe this chain of inheritance is sensible?
Most cancers didnt grow because some high and mighty body willed it into existence, they did it within a system of biological laws and conditions that admittedly the body does generate
To steelman the argument that wealth is earned, this kind of stuff tend to follow a power law. So a 10% increase in effort or talent can result in a several fold increase in wealth - especially when the effects of compounding interest are considered.
This is most apparent in sports or the arts. Being just a little bit better at baseball can be the difference between a million dollar contract and being stuck in the minor leagues.
Of course the question of whether we should want success to follow a power law is a different matter. As is the role of luck. Going back to the sports example, being born at the right time of year can be a huge, permanent advantage[1].
Your argument is built on a flawed premise that ignores the foundational role government and society play in enabling wealth creation in the first place. The counterfactual is simple: without government, without the legal and social structures upheld by a functioning society, there would be no stable mechanism for accumulating wealth at all.
Wealth does not exist in a vacuum. It is not some inherent trait of individuals that manifests independently of the structures around them. The wealthiest people succeed not just because of their individual effort but because they operate within a framework that provides enforceable contracts, property rights, regulated markets, financial systems, infrastructure, security, and a workforce educated by public institutions. Strip all that away, and they are no better off than anyone else in a lawless wasteland where power is dictated purely by brute force.
If wealth were purely a function of individual effort, we’d see people amassing fortunes in failed states or ungoverned regions where there is no government interference—but we don’t. In fact, in those places, the absence of government results in instability, extreme poverty, and the inability to conduct large-scale business. Conversely, the wealthiest individuals overwhelmingly exist in places with strong institutions and legal protections—because those things are prerequisites for wealth accumulation.
Your contradiction is actually the real contradiction. You claim that people become rich despite the government but then ignore the fact that wealth is unequally distributed precisely because the government does not intervene enough to prevent market capture by a small elite. A government that enables wealth creation is not the same as one that ensures it is fairly distributed. It is perfectly consistent to acknowledge that wealth requires government structures while also recognizing that unchecked capitalism leads to oligarchy.
So no, this isn't simplistic nonsense. The simplistic nonsense is pretending that wealth creation happens in a vacuum when, in reality, it is entirely contingent on the existence of an organized society with functional institutions.
> No, the majority of wealthy people didn't accumulate their wealth because high and mighty lord government willed it into their existence. They did it within a system of laws and regulations that government admittedly does create for fostering such wealth creation.
This is akin to saying you only achieved a high score in a video game by your own sweat and effort, and saying the video game developer had nothing to do with it. Without their work, you wouldn't have a system within which to accrue wealth. You may not even have the concept of wealth or property. Bezos wouldn't have his wealth regardless of himself creating amazon if there didn't already exist power grids to electrify his warehouses and data centers, roads upon which his delivery vans could travel, a financial sector to see him be paid for his goods, on and on and on.
The mythmaking of the self-made-wealthy has gone completely off the fucking deep end at this point with a portion of the population, as if these CEOs fell from the sky, cratered in the Earth, raised their arms and from them spawned hyperscaler businesses and cavemen left their campfires, picked up Macbooks and started writing React code.
> It's contradictory and absurd to argue that people accumulate wealth because of the government while at the same time arguing that we live in a situation in which we need more government control of people's earnings to prevent oligarchy since government doesn't do enough.
This is not contradictory at all unless you boil the points down utterly beyond recognition.
But laws shouldn't be set based on how easy they are to avoid. Lots of people drive too fast all the time, yet few argue that we should do away with speed limits. Besides, there is zero empirical evidence that suggests that raising rich people's taxes is ineffective. Yes, they are good at avoiding taxes, but professional tax collectors are probably even better at enforcing taxes. It's a question of political will, or lack thereof, due to not wanting to lose your biggest donors.
I understand this is a tangent but you picked a really bad example. We should be trying to remove every single speed limit that we can.
If the design speed of a road does not match the speed limit of the road, people will drive the design speed, cops will learn to sit there all hours of the day waiting for people to mess up, and get ticketed. Instead of just putting up the speed limit sign, city planners should design for the road to be safe without need for the speed limits to be in place. This can mean things like reducing the width of a lane, could mean speed bumps, to purposeful non-straight sections.
There will always be people who go much faster than the design speed. They are ignoring their and everyone else's safety.
I live on major street where the speed limit is 25 to slow people down. It used to be 35, and people normally go 35-45. The problem is that people go much faster when there is no traffic because the street feels wider. I would love if they redesigned for a slower speed. But there are cars in the middle of the night that drive over 60. It doesn't matter if street is calmed, they will go super fast and only tickets with slow them down.
There will always be people who go much faster than the design speed. They are ignoring their and everyone else's safety.
Those people don't care about speed limits, in part because they are generally set significantly too low. This has the effect of normalizing the scofflaws' attitude even when carried to a genuinely reckless extreme.
Conversely, if you raise the speed limit to the 85th percentile, anyone exceeding it significantly will stand out enough to catch easily.
Speeding is a victimless crime anyway. If you hit something or someone, you were doing something wrong besides speeding.
There's a third choice, though. It's bad when speed limits are much lower than the natural speed of the road, for the reason you describe. And it's good when the natural speed of the road is the safe speed of the road. But in addition to those two, it's also possible to introduce fast, automated enforcement— speed cameras.
This, of course, applies just as much to the actual topic of the Economist article; new inheritance taxes are just and good, but they should be written to be enforceable, and then they should actually be enforced.
If the safe speed of the road is 25mph, and the design speed of the road is above 25mph, you will not have safety no matter what the speed limit is. Vision Zero strategies take these factors into account to ensure safety.
Bollocks. The only thing that gets you is young and reckless drivers going 200mph on the highway, endangering everyone around them. There are limits to increasing safety in road design, and limits in the reaction speed of humans.
And the reason is those same rich influence the laws to their benefit.
It would be pretty trivial to tax the wealth if a society wanted to do so. But laws are made by lobbyists, who are paid by the rich, so what should we expect.
If the individual resides in Australia, how do they utilize the $980k sitting in the foreign company?
The company can buy assets in AU, such as a house, and lease it to the individual, but I'm pretty sure the ATO requires they pay the company rent at market rate, which will likely be unaffordable on a reported income of 20K pa.
A land value tax would be impossible to evade. Even a business’s assets will exist somewhere on land. In the case of intellectual property, reducing copyright and agents to 10 years should solve the problem.
And that's why Georgism exists! You can't offshore a plot of land.
If you've really managed to generate trillions in profit without using any, including indirectly (mining, showrooms, etc), fair enough. If your economic model is quite literally rent seeking, you can fuck off and give all those proceeds to whatever government ensures that land is not overrun by whatever raiders are historically a problem in your area. If you work for a living, you should be able to spend your earnings on a fancy apartment if you wish, and if a landlord wishes to make one instead of just sitting on land, they keep the profits from that too.
The only way to force everyone to pay is with a consumption tax. We'd tax based on consumption so those yachts, Rolexes, and home construction, etc. that the rich spend crazy amounts on gets taxed.
Of course since a consumption tax hurts the poor disproportionately, the gov't would send a refund check to them, in large enough amounts to make up for it, where the poor are basically paying zero tax.
It also fairly discourages illegal immigration because illegals wouldn't get that kickback check from the Gov't, since they're 'visitors' not 'citizens'.
As complicated as this would be to implement, it is only solution I think sounds like a fair policy to discourage getting filthy rich while lifting the poor to a better economic balance.
Although, I have a feeling the filthy rich would simply choose to spend elsewhere where the consumption taxes don’t exist or are lower…
It's easy to implement, because sales tax already exists in every state but 5 right? So it's already all built-in to the Point-of-Sales software, banking, finance, etc.
Insofar as simply "choosing to spend elsewhere (outside USA)", somehow sales-tax is something people find difficult to avoid already right? We're just talking about increasing existing sales tax amount, and then eliminating all Federal tax.
Revenue neutral carbon taxes with all income dividended back out per capita are really the move here. It’s also one of the few really promising ways to tackle climate change effectively.
Seems to me like that's a similar approach but a consumption tax is easier for everyone to understand and would be therefore more palatable to the public. Also the consumption tax would have a similar affect of taxing people proportional to the amount of damage they're doing to the environment. For example, we want a big tax on Rolexes but making a watch doesn't really do that much carbon consumption.
> Seems to me like that's a similar approach but a consumption tax is easier for everyone to understand and would be therefore more palatable to the public.
There is a false assumption here, that easy to understand makes it more palatable. A flat capitation would be even easier to understand, and even less palatable, because the ease of understanding is directly connected, in its case, to the ease of opponents organizing against it. A flat consumption tax faces a similar problem, which is why the efforts to push one to replace the income and payroll taxes for decades now under the label "Fair Tax" have been unsuccessful -- easy to understand isn't a political benefit when people who understand it often don't like what they understand.
The current insanely complicated tax code (with trillion upon trillions of rules and special cases) is something that even professional Tax Accountants admit no human can possibly understand.
But we know one thing as a fact: MOST OF IT was WRITTEN by Washington DC lobbyists specifically to embed in it all the loopholes that make it so that the elite in this country will pay hardly any taxes at all. Basically the fox guarding the hen house.
The obvious solution is to throw it ALL out and go with something simple that everyone understands. The reason this doesn't ever happen is because those same K-Street lobbyists make very large financial "contributions" to the same politicians in DC whose votes are required for a change.
In Washington state, they passed a capital gains tax primarilly to tax Jeff Bezos. Bezos simply left the state just before the tax took effect. So did a lot of other wealthy residents.
The solution to that might be to increase funding to the irs; currently the political elites are seeking to kneecap the irs so that it’s even easier for them to evade taxes.
The title of this piece is “Effective Income Tax Rates Have Fallen for The Top One Percent Since World War II” which seems to directly contradict your statement they have been stable?
Right—they fell sharply from 1945 to 1955 (it looks the data points are sampled every 10 years) but have been pretty stable in the post-war era, as I said. Note that OP stated the top tax rate was lowered starting in the 1970s.
How is dramatically lowering since 1970s compatible with stable after 1955? The fact is tax on the rich started going down in the 1970s and since the 90s tax havens and other shenanigans like renting out your own mega yacht to off shore shell companies even though you were using it. And a million other ways these people don’t pay.
For the richest tax is optional to the point where that get loans against their shares rather than pay capital gains tax. It’s an absolute disgrace and it’s got to a point where governments need to taxing them properly.
Indirectly, we can point to the creation of Alternative Minimum Tax (AMT) in the 1960s to ensure that higher income taxpayers paid at least some minimum despite the plentiful deductions. Some of the things not allowed under AMT are state and local tax deductions, interest on mortgage equity debt (not acquistion debt), personal and dependent exemption deductions, deferring tax on compensation due to Incentive Stock Options (ISO), some kinds of accelerated depreciation, and so on.
While its true that its higher now than it was the 1950s-1980s, its an increase of about 15%.
It if was the case that the very high marginal rates were actually being paid, you would expect the percentage of income held by the top 1% to be much higher.
Here's another source with more direct comparison - how much their income they actually paid in tax
Even though this comment is inaccurate because it just takes a a single figure figure and generalises it to all-of-time, I still feel compelled by to say something like:
Giving money to politicians is like giving whiskey and car keys to teenage boys.
The very to extremely wealthy run nations, why would giving them control of more money, someone else’s money, be a reasonable idea.
I suppose the argument is tax the rich more, and the poor less.
Nah, there’s got to be a better way, like maybe tax everyone less.
> rich people want to invest some of it in the real world, not leave it in the bank
Honestly, I have no idea why would anyone need that. Money is not value. Money is just a way of keeping track who is owed by future society how much value. It's a way of keeping tabs who gets to consume in the future.
When rich people hoard their money it's not a problem, you can just print more money to replace what they sucked up and hoarded. It's exactly when they try to spend it where the problems start to show up. Because they are doing it stupidly causing at least some inflationary pressures but more often than not societal and environmental harm.
Countries should make every effort to make spending their money as hard as possible for the rich people. Disincentivize them with high (and highly progressive) luxury, investment and real estate taxes. If that causes them to hide their money to avoid tax, even better. Every dollar of rich money hidden is a dollar of value not wasted by society on servicing the rich and their whims and gambling.
People who make their money producing luxury goods or developing real-estate may disagree. As might all the people who work in the supply chains for those activities.
Rich people generally don't keep the majority of their money as cash in a vault. When money lies in the bank, the bank invests it in the real world. Or more directly, when money lies in stocks and bonds, it is invested in the real world.
> when money lies in stocks and bonds, it is invested in the real world.
Is it though? How much did Nvidia invest more, after their stock hikes? How about Tesla, Microsoft, Apple? No. They cut their staff or maybe stayed at their current investment levels.
You have the ordering of events inverted. Companies do not automatically have more money to invest after their stock price rises, because the stock is traded between unrelated third parties. Rather, the stock price rises after the company made investments that paid off, increasing the company's expected future profit. This then retroactively provides the incentive for people to give money directly to companies to invest in exchange for partial ownership.
So the question you should be asking is: How much did Nvidia invest before their stock hikes? And which companies will the original investors fund next after selling their shares at a profit?
We should be careful when we say "economists disagree."
Economists disagree with Piketty about the causes of this inequality: that is true.
Economists agree with Piketty however about the extent of inequality, by and large. That is, no one is arguing "inequality isn't real" or even "inequality is decreasing."
So there is disagreement about what's causing the inequality, yes. But on what (to me) is the bigger question - is inequality real and increasing? - there is a consensus that it is.
It's all there in the historical record, and as a trend, it's huge.
OK, but Piketty's thesis is about the cause of inequality, not just that it exists and is growing. So, economists agree that inequality is growing, and disagree with Piketty's thesis.
Inequality can increase while the poorest are still getting richer in real terms (inflation-adjusted income). That's been the case for a decades now: https://archive.is/HcRsU
"It is the mechanic and teaching assistant in the middle who have the best claim to having missed the party: median real income rose by 57% from 1990 to 2019. But that is still a healthy 1.6% per year—a far cry from the stagnation in median earnings that is sometimes alleged".
For the record, I think inheritance tax should be way higher, and allowing the value of money to outstrip the value of labor is a travesty, but it's important to keep in mind that people across the income spectrum are getting richer in real terms. It's better to be poor in America than median income in most countries.
How does that work with so many people being worse off? I.e. most of my friends can't afford a home, avoid going to the doctor, can barely make ends meet in dead end jobs, etc. Maybe, the measurements they are using for inflation aren't measuring the right things?
Do you live in a major liberal city? Then your cost of housing is probably unreasonable by national standards. The CPI for 2025 is 44% determined by housing costs, so if you spend ~44% of your income on housing then it's probably a reasonably accurate measure of the inflation you're experiencing.
The extreme example is NYC where 1 in 3 spend more than 50% of their income on rent, and rent has appreciated there much faster than nationwide. So those people experiencing far higher inflation than the national average.
It's also pretty easy to overestimate how easy previous generations had it. It's called survivorship bias. This recent bout of inflation is bad, but it doesn't hold a candle to what happened in the 70s / 80s, which is still regarded as the good ole days by some
"...allowing the value of money to outstrip the value of labor is a travesty..."
I am NOT an economist, and wonder what you mean here? It feels contradictory to me, given a system that makes labor fungible with money.
I've armchair puzzled over this aspect of capitalism and human nature. It seems to me that we, as individuals in this system, most fundamentally want to be able to use capital to time-shift the fruits of our labor, i.e. for rainy days, retirement, and unforeseen events. We need to be able to convert labor to capital, hold it, then convert it back to gain benefits of someone else's labor later.
But it seems inherent that this ability to make labor and capital fungible will enable some to amass and wield much more capital than others. In a population with differing wages, lifestyles, life events, and appetites for risk, it seems inevitable that the integral of these net savings effects will be divergent.
If you introduce a "reset" or leveling function, it seems like it will contradict this stored labor feature. It pushes us back on the continuum towards living hand-to-mouth, since our stored efforts are diminished in the future. And, I think human nature is such that we will "optimize" to stop trying to store effort that we can't expect to get back...
Is this an inherent feature of economics (or of society)? Do we need a fiction of security and potential future wealth to motivate our contributions, yet eventually need discontinuity to terminate the outcomes of this fiction?
> We need to be able to convert labor to capital, hold it, then convert it back to gain benefits of someone else's labor later.
That part seems fine to me. The thing that feels intuitively "wrong" is that it's possible to amass money/capital way out of proportion to the amount of labor input.
The example of the "four hour work week" concept comes to mind, where the goal is explicitly to minimize the ratio of input labor to output capital. Why should 4 hours of my work now entitle me to, say, 40 (or 400, or 4000...) hours of someone else's work later?
I am also not an economist, so perhaps someone else can explain what other mechanism is working alongside your "labor is fungible with capital" that leads to this result, and whether it's a feature or a buy of the economic machine...
I'm not sure I follow what you mean. But, you can trace inductively how sellers of goods and services start to amass wealth, because prices are set by what buyers see as worthwhile rather than at a minimized "cost plus" basis.
And eventually, once you have enough capital, your new job becomes managing your capital instead of whatever you did before. There's two ways to look at that. Your labor is research and planning of your own investments. Alternatively, you are "selling" capital to others who are seeking investments, and they are "buying" it with labor. But the same story as above holds true. The price of capital (in terms of labor) becomes what the market will bear rather than a minimized "cost plus" pricing.
This duality is what it means for labor and capital to be fungible, right?
To partly answer my own question - clearly there is work we can do that is net-positive. I can spend my time turning a crank to charge a battery, and sometime later get back a subset of the energy I put in. Or, I can spend that amount of time digging up coal, or building a solar panel, and then sometime later have access to many multiples of the amount of energy that I put in.
"value" here is referring to the potential to generate new income, not to store already-acquired wealth for later. Wealth can be invested to generate interest.
Let's say you can get a risk-free 5% return on capital and the average wage for labor is $80k. If you have $1.6M, then you can generate $80k in income every year without lifting a finger and without diminishing your principle. The richer you are, the more "free income" you get. Very rich people never have to work and they still get richer faster than the average laborer working full time. That's bad for society.
This is not an inherent feature of capitalism. A progressive capital gains tax regime can correct this. There has to be some return on capital, because otherwise it would be impossible find investors and secure loans when you need it, but that return should not be enough to mean the rich don't have to work at all and still get richer. The travesty is that effective capital gains taxes are often lower than income taxes in America, making this problem especially pronounced.
Your "reset" concept sounds like a wealth tax, not a capital gains tax. Alas, I'm not an economist either, but I believe wealth taxes are much more controversial than capital gains taxes among economists.
> How can people not see that Trump is weakening USA?
Yes, but once income inceeases beyond starvation levels, relative deprivation predicts misery more than absolute deprivation, so in a relatively developed country, that's still a bad thing.
Perhaps. So what? Their wealth/incomes were increasing much slower than worker productivity. Technological progress compensates for the massively increasing inequality to some extent.
Also other figures show that median and bottom 10th percentile incomes were almost completely stagnant between 1967 and 2014.
Of course they do. They've built entire careers around the concept that the whole economy can be models on N=1. Inequality doesn't fit into their models, so they dismiss it out of hand because otherwise the 20+ years of their life they've spent devoting to their craft proves to be no more useful than a horoscope.
The VAST majority of developers I've encountered aren't interested in building sustainable codebases. Mainly that's because that's not what their bosses want so it's in their best interest not to care about it. I could see the same happening if the economist's bosses don't care about sustainable economies.
Depends on the developer and on their organization they work for. Ideally, most do, but the pressures of work and the styles of project management sometimes sideline that, or the team ends up in survival mode where they merely try to stave off the inevitable spaghetti apocalypse
LOL I just read something yesterday (possibly a tweet by Carmack?) that game devs optimize for public perception of their game and that is it. Certainly not long term maintainability unfortunately!
Inequality is very simply to include in these models, and they do. The problem is that the models often show that the median quality of life improves faster when there's somewhat more inequality in the system, which flies in the face of every socialist intuition. It's a lot easier to pretend we need state-enforced equality.
It's simple to include, but there's no denying that the 101-level economics models steer you away from thinking about inequality harder than Vin Diesel in a car chase.
Carefully omitting the fact that the economic notion of value is wealth-weighted (and you can march enough elephants through this loophole to wage a class war), drawing attention away from "rich people getting paid for being rich" dynamics by dividing out wealth wherever possible, inviting you to use averages where "rich get richer" hides "poor get poorer" -- it's a masterclass in propaganda. I have literally never in my life seen a more artful tapestry of deception than Econ 101.
101-level models in every field elide important details. That's pretty much their whole point. And it doesn't make them propaganda, it makes them a perfunctory introduction.
I cannot think of another subject whose “101” level magical thinking has affected the real world as much as economics, though. At some point the purpose of a system is what it does, and economics 101 affects the political discourse in a way I struggle to find adequate comparisons for.
No, you don't omit the leading term by accident. Not five times in a row from three different angles.
In any case, this is also matter of historical record: the purge of left-wing thought from economics and politics at the end of the New Deal Era was loud and vicious. It didn't stop at ensuring capitalist principles got top billing, it scorched the earth until even the most earnest self-examination of capitalism's largest weakness was cause for cancellation. You bury it, or you wear the scarlet letter. Most chose to bury it, and here we are.
Inequality exists on a spectrum and there is something in between Gini coefficients of zero and one.
If anything, I think economists have grossly underestimated how large increasing levels of inequality have had such a corrosive effect on our social cohesion and political systems, and that obviously does have a huge impact on eventual economic outcomes. This societal/political breakdown is not something that economists usually model well.
That does seem to be a large part of why those who were on the fence voted for Trump. So even if it's not the core, it's a large part of why he won the election.
I certainly think, that regardless of the underlying hard numbers, there's a very strong perception that life is getting harder for the average person, and that most of that is due to their money going towards things that they resent. Exactly how and what will vary from person to person and depend on their information diet and political leanings, but there's a big undercurrent of discontent with the status quo and a strong belief it's due to a relative few benefiting from it, and this especially jives poorly with any assertion that "actually, the numbers show most people are just fine!"
I would, if I had the time, like to dive deeper into this sentiment: there's a decent amount of evidence that people are better off, on average (and median, so not prone to distortion by the hyper wealthy), than ever before, and yet this isn't how the average person perceives it. What I don't know is whether this is because said evidence is wrong or misleading, because inequality matters more psychologically than the absolute wealth, whether expectations have simply grown above the growth in wealth, or whether it's because there's been a flattening of the curve where historically disadvantaged groups have gotten better off but advantaged groups have become worse off.
I don't know if anyone is really arguing for state enforced equality. Just that in a capitalist system money naturally accumulates at the top and slowly regresses into a socialist like centrally planned economy as fewer and fewer people have meaningful wealth to allocate. A little inequality is good because there's a reward mechanism for allocating resources better but a lot of inequality locks
up the economy. And the only thing to really do is tax it and recirculate it back to
the bottom.
Also, what those polled disagree with is this particular statement:
> The most powerful force pushing towards greater wealth inequality in the US since the 1970s is the gap between the after-tax return on capital and the economic growth rate.
This doesn't mean they disagree that r>g is a contributing factor to a greater portion of wealth being transferred to those with investment capital (which ultimately can have dire consequences for society). It's not difficult to demonstrate that those with a higher rate of return than the pace at which new wealth is being created (one definition of economic growth) will be capturing a greater share of that new wealth.
> That's partly because inequality doesn't fit into their models.
Well Piketty being wrong doesn't fit in many people's models either. Economists routinely do talk about inequality and I think it's intellectually dishonest to paint the whole field as wrong just because some parts of it don't agree with your pet theory.
(1) “American economists” only. (2)Also I am sure looking at the political/institutional affiliations of the responders would be interesting. (3) The responders comments show very different reasoning for disagreement. Some focus on stat derivatives, some on model incompatibility and some on more anecdotal evidence. (4) Some answers are bat-shit crazy like “not sure wealth inequality has risen in the US”.
Economists, the one with Master and PhD, built their understanding and thesis from those fundamental models where inequality was not in the picture (to simplify the model).
To agree with the opposite views mean to disprove their thesis and career.
Gary is great laying it out for the layman but he talks as if he "thought" it all up. It's really Thomas Piketty who pointed out the issue way before Gary.
I think the difference with Gary is that he has experienced both sides of the coin: grew up of modest means, then became wealthy trading FX for Citibank. As much as HN hates to admit it, storytelling does help to make your points more accessible.
You don't "need" rich people, but they are an inevitable consequence of the ideas Western civilization is built on. We generally believe that someone is entitled to keep what they have earned and do what they wish with it (property rights). So, let's say you burn down society and start over with everyone working at subsistence level. The first generation, everyone will be basically equal. By the end of the generation, some will have done better than others (through luck, or through hard work and intelligence). They will want to pass it on to their children. Now in the next generation, some people will be starting at an advantage. Some of those will take it easy, but some will use their leg up to get even further ahead. The ones who get even further ahead will want to pass that on to their children, and so on.
Repeat this cycle enough times and you will wind up with rich people and poor people, even if you started with a perfectly level playing field. It's an inescapable outcome. Some people will always do better than others, even starting from nothing, and as that advantage accretes through generations it will mean you wind up with the haves and have-nots. The only way to prevent it is to enforce limits on what people can do with the fruits of their labor - and that is something most are not willing to do. People believe in property rights and aren't generally willing to violate them. So, you will inevitably have rich people in society.
> We generally believe that someone is entitled to keep what they have earned and do what they wish with it (property rights).
This isn’t the law of the land because “we believe it” but because the burgeoisie made it so. But that’s a side note.
> So, let's say you burn down society and start over with everyone working at subsistence level.
Hypothetical/alternative history is not interesting. You can look at the enclosure of the commons in England. The commons that the subsistence farmers used was outright stolen.
Yes, and then there’s the subsistence level. Serfs and landless famers have been exploited for millenia not because their peers had worked harder and in turn had more grain stored... but because they were landless and/or oppressed by the weaponized lordship.
By the way, do you honestly think that someone will be enlightened by explaining how inheritance works? Maybe you’re just of an exceptionally patient explainer.
> Repeat this cycle enough times and you will wind up with rich people and poor people, even if you started with a perfectly level playing field. It's an inescapable outcome. Some people will always do better than others, even starting from nothing, and as that advantage accretes through generations it will mean you wind up with the haves and have-nots.
What this narrative seems to imply is the most direct and obvious inequality, namely some people having bigger houses, more swimming pools, and more cars than others.
This is totally uninteresting. Does someone want to work 30% harder than the median over five years so that they get to install a swimming pool? Whatever, I don’t care.[1]
There’s something about money though. You can use it for more stuff than buying cooler cars. You can use it as capital, i.e. to invest in means of production. Then you can buy all of the means of production. Or you can employ imperialism via the state (that you effectively own because you have money) in order to seize the means of production (or access to raw goods) in some second/third world country that wanted to naively own their own stuff. (Property rights?) Lots of things you can do with money.
Then eventually all the small proprietors (small business owners that we like to put on a pedestal for propaganda purposes) have been outcompeted. The farmers have been driven off the former common land (see enclosure of the commons).
All you can do to survive is to sell your labor as a commodity. So about fruits of their labor:
> The only way to prevent it is to enforce limits on what people can do with the fruits of their labor - and that is something most are not willing to do.
A small business owner that works alongside their employees is producing part of the “fruits of their labor”. A capitalist that employs a thousand workers including the managers is not part of producing the “fruits of their labor”. See how farcical that is? The fruits of their labor has got nothing to do with labor. Only about sitting on capital.
Meanwhile the laborer does not get the fruits of their labor. In fact it has got nothing to do with how many fruits he bears. Only about what the market is willing to pay for the labor commodity. As well as collective bargaining if that is even in the picture. (Guess who is actively working against that.)
Yeah I’m all about people getting to enjoy the fruits of their labor. In actuality.
The reformist approach of things like taxation does take away people’s swimming pool expansion funds. It does. Which is an inherent side effect to how completely fungible money is; it can buy a swimming pool or capital or be put to someone’s CIA informant/collaborator stipend all the same.
[1] I asked what social function rich people serve. Owning a swimming pool is fine even though it serves to social purpose. Just like a lot of other things that are fine but serve no social purpose.
I would bet at least 95% or more, personally. I'd survive okay here (until I got sick or injured) because my local environment is pretty easy to survive in, but I would die quick in a harsher wilderness, I am sure, and I am fine with admitting that!
There's a happy medium between what we have today (rampant consumerism and waste) and what we had a thousand years ago (every tribe for themselves). Perhaps you and I can agree that a lot of what humans do is useful transformations of resources into things that help us (housing, food, much of our tech and manufacturing), and then there is a lot of what we do that is completely wasteful that we could be doing less of (plastic crap, driving to offices to meet on Zoom, perhaps we build houses too large, we build in bad places for humans to survive, etc.).
My previous comment was a bit snarky, but my point via that comment is that not everything we do to transform resources into stuff increases the value of the world, perhaps some wasteful things even harm our world and decrease it's value in the future. You're a smart guy, you understand nuance and that wasting our natural resources, especially the non-renewable ones like oil, in a mostly closed ecosystem is a bad idea.
I figured it was obvious that creating something meant creating something of value.
If someone else is willing to trade for it, then something of value has been created.
P.S. Most people don't know how to make a fire from scratch, and will die of hypothermia in even modest environments. I know how to do it, but have never actually tried it. Doing it without even a knife will be really hard. The TV series "Alone" is instructive about how hard it is to survive, even if you're well-equipped with modern gear.
> invest some of it in the real world, not leave it in the bank.
The richer you get, the more likely you are to engage in wealth management. This necessarily means investment. No one who's rich has that much liquidity or money just laying around. This is as stupid as hiding cash in your mattress.
The question is which are genuine investments or scams. And this cannot be emphasized enough: either money is made from value-generating labor, or you are in the business of theft. There is no middle ground or third option.
This is why I think one key element of restoring sanity to economies is the categorical criminalization of usury. Compound interest is theft, and it boggles the mind how easily people are intimidated into going along with the rationalizations purporting to explain that it is not (all that nonsense about opportunity cost, as if that is the borrower's problem or responsibility). Banks are important, but they are not productive per se. The only ways a bank can legitimately make money is through service fees and investments (and real investments, where there is a kind of partnership and proportionate skin in the game, not magic bailout money or some kind of weird accounting magic).
Once we destroy the superstitious idea that money can be bred, stop using euphemisms for theft, and acknowledge labor as the basis of all economic value, we will see a healthy economic shift and more distributive justice. Housing markets will improve, too. The change is deep cutting.
The whole discussion about inequality or taxing the rich or inheritance is confused and frankly a distraction from real problems, and I suspect at times a purposeful distraction, because it preserves perverse economic norms (making the tax simply the cost of doing business) instead of correcting them, which is the real threat.
> The question is which are genuine investments or scams. And this cannot be emphasized enough: either money is made from value-generating labor, or you are in the business of theft. There is no middle ground or third option.
Strong words. In your model/world view: Where does investing in the stock market fit? My guess: Nearly all people on this board earn more than the median income and will probably build multi-million dollar retirement savings accounts due to long term (multi-decade) stock market investments (probably passive index ETFs).
The fundamental theorem of capitalism: rich people get paid for being rich in proportion to how rich they are.
This is why your savings account looks like an exponential. The thing to understand is the difference in lived experience depending on where it starts. If you are poor, the returns are a joke, you tend to ignore them. If you are middle class, the returns fund your retirement, and it seems roughly fair: you work hard and at some point you earn the right to not work any more. Only if you are rich do you see the fountain of free money (homework: calculate yearly returns for the typical 10%er, 1%er, .1%er, and centabillionaire), and of course being the beneficiary you rationalize away the possibility that this could be a problem at all. It's a tidy system.
"That's an unfair characterization of capitalism!"
So is the one you get in economics which bends over backwards to hide the "fundamental theorem" as I have stated it inside a choice of units: "under conditions of market equilibrium every financial asset has an equivalent risk-adjusted rate of return from the perspective of its marginal buyer." Did you miss the class warfare? It was all hidden inside the word "rate." Very clever.
How does economics bend over backwards to hide the “fundamental theorem”?
Every intro to macroeconomics basically starts with a simplified conceptualisation of production as a function of labour and capital. Then it describes returns to labor and capital and so on. People who own capital get paid for that capital. It’s quite literally Economics 101.
Piketty is a hack. Most billionaires don't spend anything even close to their net worth. In effect, they have a bunch of IOUs from other people and never cash them in.
"ever increasing" - no. People die, billionaires tend to stay that way for a few decades then die. In the grand scheme they are nothing, zero. Death aside, look at all the billionaires currently running to kiss the ring of Trump - a populist elected by the people of the US against the will of the so called elite. No one is in control, no one has very much power. It's a story book idea.
Inequality is generally accepted as differences in material possessions acquired/consumed or access to services (eg health, travel, whatever). It's fair to aggregate it into "consumption".
Jeff Bezos is literally never cashing in the vast majority of the IOUs he has. The actual difference in his life isn't anything close to that suggested by the difference in net worth between he and I.
Net worth differences aren't a good proxy for actual lived differences. It's off by orders of magnitude. This isn't a groundbreaking idea, Piketty is aware. He discusses it briefly in his book, with handwavy, abstract notions about "power" and "influence", as if that's what most people care about. But, it doesn't sell the same way his nonsense does. So he pedals his nonsense.
This is nonsensical. The response to "net worth is a bad proxy for consumption" isn't to show various ways of slicing and dicing net worth. A person with net worth $30m doesn't consume 10x that of someone with $3m, or anything like it. Piketty's own assumption is that most of the money is used for investment capital.
The argument is clear - net worth is a bad proxy for consumption and lived experience. You just can't read. Piketty can, he just doesn't like that it makes his argument significantly less potent so he tries to paper over it with "power" and "influence" as if 99% of the world could care less about those things.
> net worth is a bad proxy for consumption and lived experience
Because it's simply not. It's a very good proxy. I understand what you said and only think you are somewhat right if talking about people who are at the very tail of the distribution (yes, when it comes to "consumption and lived experience" it hardly matters if you have 100 millions, 500 or even a billion).
For those in the the 99.X% it's certainly (and obviously backed by all kinds of data) good indicator.
Talking about the "lived" part. Here is another indicator http://www.equality-of-opportunity.org/health/. Of course now you'll claim that living for significantly longer does not say much about the "experience" part or some other nonsense.
> You just can't read.
Or have a low tolerance of ideologically driven demagoguery.
>doesn't like that it makes his argument significantly less potent
I'm still waiting for you to elaborate on that besides just claiming it as fact or "proving" that it doesn't apply if you're in the 0.1% (which is hardly relevant).
The top 1% make ~800k pa. The bottom 1% make ~15k. Thats over 50x difference.
The difference in life expectancy is 15%. That's 1.15x. And that's including that steepest part right at the front.
You've been bamboozled by the y axis not starting at 0. Someone making 10x more than someone else gets a few % extra life expectancy. Significantly less than just taking a 30 min run a few times a week.
Which is huge. Life expectancy in the US increased by ~15% between 1955 and now. Surely you would be entirely content with receiving the same level of care as was available back then and inhaling some lead now and then?
> You've been bamboozled by the y axis not starting at 0
It must be fun being so absurdly obtuse. The whole line of reasoning in your comment is so silly that it's hardly worth commenting on.
There is a massive difference between dying before you reach 72 vs living for another 15 years.
The difference in avg. life expectancy between Germany and Ethiopia is less than that.
Again, surely there is no measurable difference between living in either place when you are making median income?
The difference is less than those who exercise v not, slightly larger than that between men and women. For 50x chance in income. Money simply isn't as big a differentiator in life as you desperately want it to be. And that's the tiny bit of common sense required.
It seems by your standards nothing is. Yet if you add it all together instead of looking at a single indicator money is inarguably (if you have any arguments or data please share them) statistically the biggest differentiator compared to anything else besides congenital diseases and other health conditions we can't treat yet.
> And that's the tiny bit of common sense required
Well having more than a "tiny bit" of common sense would made it obvious than it's not the case.
> For 50x chance in income.
Directly comparing wealth/income ratios and absolute differences in life expectancy or other indicator just makes no sense and claiming that it somehow proves something. Having only a tiny bit of knowledge about statistics would make that obvious.
The problems with Piketty's arguments are addressed in the article:
"if America’s rich families in 1900 had invested passively in the stockmarket, spent 2% of their wealth each year and had the usual number of children, there would be about 16,000 old-money billionaires in America today. In fact, there are fewer than 1,000 billionaires and the vast majority of them are self-made"
Yes, if rich people invested their money wisely, gave nothing to charity, spent small amounts, and left their wealth to one of their children, wealth inequality would grow unchecked.
But wealth inequality has still grown quite a bit. Your point is not a refutation, it’s just an observation that the infection has progressed more slowly than it could have if it was completely optimal.
Why do people post stuff like this. If your ideology depends on misleading people about bad things that are obviously happening, just get a better ideology!
he didn't say it's ok. He said piketty is wrong. Anyone who studied even econ 101 and combined it with a teaspoon of common sense knows piketty is an idiot and that book is garbage. He's a politician.
Maybe actually take econ 101 so you can get the thrust of the book rather than getting lost in the details. His thesis, in that book, is that r > g and that over many years that difference results in very large accumulations of wealth. No one disputes that there are various means that r is achieved.
It doesn't change the thesis, which is wrong. r is not greater than g for any reasonable amount of time for individuals/families because humans have an amazing ability to behave stupidly and reduce r below g.
Piketty’s argument was not just that income inequality would increase, but that it would increase because the return on capital is greater than the growth rate of the economy, so, in his words, "It is almost inevitable that inherited wealth will dominate wealth amassed from a lifetime's labor by a wide margin".
But inherited wealth does not dominate wealth amassed from a lifetime's labor. The largest fortunes today are dominated by people who built businesses, not by people who inherited their wealth. So if "there are fewer than 1,000 billionaires and the vast majority of them are self-made", that is a direct refutation of Pikkety's thesis.
It is hard to overstate just how bad Pikkety's arguments are. His argument assumes single inheritance of fortunes, it assumes that wealthy people don't donate significant sums to charity, it assumes that inheritors of wealth will invest that wealth as wisely as the person who created it, along with many, many other false assumptions. The most egregious one in my opinion is that it assumes the wealthy don't spend their money.
If a billionaire makes a 5% return on his billion dollars and spends $50 million dollars a year, does wealth inequality increase? No, it does not.
It's a ridiculous theory, it is directly contradicted by the facts, and I have no idea why it is taken seriously by people here other than just as an opportunity to participate in a 2 minutes hate against rich people.
They're saying that self-made billionaires didn't inherit their wealth. Which means they created it. Which means that it created useful economic activity. And since rich people dont optimally pass on their wealth, those 1000 billionaires' spawn are likely to piss away that wealth while 1000 more economically active individuals create more healthy economic activity in pursuit of becoming billionaires so that they can pass on their wealth to their children to piss away, ad. Inf.
If that's the argument, then it sounds pretty flawed TBH. I mean how does not inheriting their wealth, automatically mean they created it? Is theft not also a possibility?
"wealth inequality" is one of the dumbest ways of measuring the health of an economy, or to specifically aim to reduce. Unfortunately, there will always be a baseline group of people at, or near, zero wealth. The goal should simply be to reduce this number and the overall number of people living in or near poverty. Whether Warren Buffett has $50, 100, or 200 billion - which does affect wealth inequality calculations - is of zero consequence to the lives of the lowest-wealth individuals (nor did someone like SBF losing 10s of billions, help them)
It matters if one person can buy Twitter on a whim and use it to pursue his ideological goals, or if one person can buy The Washington Post and dictate it's editorial positions, or if a small handful of people can fund an effort to identify and groom a wide bench of lawyers to one day become judges who will bend the law in their favor. Not to mention plain old lobbying and campaign contributions. When wealth is power, wealth inequality is toxic to democracy.
>It matters if one person can buy Twitter on a whim and use it to pursue his ideological goals, or if one person can buy The Washington Post and dictate it's editorial positions,
Oh no, now it's important to stop this because some people are able to do these things while having political viewpoints that you don't like. Were you previously making the same argument against say, the New York Times, due to it's being owned by one family and following that family's specific ideological viewpoints?
Wealth inequality is an innate part of human society, and by itself has little bearing on democracy or even overall standards of living. There are also many countries with low wealth inequality in which democracy doesn't exist in any sense.
I don't think it's practical to eliminate wealth inequality. But we can certainly limit it. I would also be less concerned about wealth inequality if we had more robust legal frameworks to prevent wealthy people and institutions from having an outsized influence--for example, campaign finance limits and public campaign financing, elimination of super-pacs and dark money, lobbying regulations, and bans on government officials becoming lobbyists, etc. Instead, these guardrails are steadily eroding. Citizens United devestated campaign finance regulations. Last year in Snyder v. United States, the Supreme Court ruled that federal bribery law does not prohibit gifts or gratuities given to state and local officials after an official act. Of course these are just the kinds of rulings the Federalist Society has hoped to see, financed by the Mercers, Kochs, and other wealthy families. Six of the nine current justices have ties to the Federalist Society.
I’m not the person you’re responding to, but I’ll answer that yes, it has always been a problem that so much influence is concentrated in so few hands. It’s been said that a dictatorship would be the best form of governance if you could ensure the dictator would always be the best one possible. But you can’t. When you allow such concentrations of power, at some point someone who is willing to abuse that power, or someone who is simply incompetent, will come along and it’s a disaster for everybody.
Wealth inequality is not innate; there have been plenty of civilizations with far less of it. It’s only an inherent part of free-market capitalism.
>Wealth inequality is not innate; there have been plenty of civilizations with far less of it. It’s only an inherent part of free-market capitalism.
Please by all means, name these superior civilizations with minimal wealth inequality. The fact that some people are immensely rich and many others aren't is much less important than how a given society regulates individual rights to live one's life and be protected by the law. Wealth inequality is also less important than the specific question of how these rich people became what they are and how much power they have over those less wealthy than them. Ie: You can't honestly compare a modern market economy with a feudal barony.
In much of the modern "terribly" unequal market economies, a Bill Gates or Musk can be freely told to go fuck themselves by anyone less wealthy than them and their wealth has little to do with some random average person's capacity to better their own life. The same often doesn't apply to societies with low wealth inequality, which coincidentally are often poorly developed and authoritarian.
I don't really care if Warren Buffet, Zuckerberg or Ellison can buy a dozen private jets any time they like if I live in the same society with most of my legal and economic rights protected, and with the ability to create a comfortable life also respected. I would however worry about a more supposedly egalitarian state in which central authority figures have given themselves the legal right to confiscate property and earned capital for reasons of ideology.
Also, while many on this site live in a bubble in which the importance and influence of Musk's X (previously Twitter) is grossly fetishized, in the real world, it's just not that important. Musk can throw all the tantrums he likes on the site and ban whoever he pleases, and for 99% of the world, it doesn't matter enough to be worth a single shit.
It's when he obtains literal political power that I worry, and the mechanism behind the kind of authority that could confiscate earned wealth beyond a certain ideologically or politically defined point can at any time fall victim to someone with the kind of grossly egotistical personality that someone like X's owner has.
having the legal authority to prevent a rich person from owning a social media platform is much more dangerous than that rich person simply owning a social media platform (in a landscape of others that it has to increasingly compete with).
> Please by all means, name these superior civilizations with minimal wealth inequality.
You have to go quite far back to find those civilizations, so you can't really compare them to modern ones. Also depends on what the goals of society are. It's possible that people are happier on average in a poorer but more equal society, so would it be inferior just because it has less material wealth?
> It's when he obtains literal political power that I worry,
Money is literal political power. If it wasn't, you would not be seeing a bunch of billionaires running the government. I agree that current forms of government also concentrate power too much, but there will always be some kind of entity that makes the rules, and always those with the most resources will naturally be the most able to take control over that entity and make rules that benefit them.
> having the legal authority to prevent a rich person from owning a social media platform is much more dangerous than that rich person simply owning a social media platform (in a landscape of others that it has to increasingly compete with).
I agree, but letting people amass unlimited amounts of wealth will lead to that authority anyway. Once someone or some group of people is wealthy enough that they're able to buy the government, they'll obviously use it to give themselves that and any other authority they wish. It doesn't matter if that government is small or large, weak or powerful. There will always be a rule creating and enforcing entity, and that entity becomes whatever those who control it wish it to be. It will be controlled by those with the most resources. The solution is therefore not to try to limit the functionality of the tool that is government, but to maximize the number of people that have control over it. That requires having a more equal distribution of wealth.
Oh my, individual ownership of newspapers? Bezos bought it from Katharine Graham, while the Sulzberger clan has owned the NYT for over a century. Scripps, Hearst, Pulitzer... how did these names get famous? Newspapers.
Twitter is much more effective at brainwashing stupid people into believing any old crap than newspapers ever were, there were journalistic standards in the coverage for one thing.
So you've managed to blend elitist ideas of some people being less or more "qualified" to disseminate certain opinions than others who don't share your ideological preferences with supposedly egalitarian ideas of reducing concentration of power.
Also, journalistic standards, historically, were little or not at all better than anything you see online today. Yellow journalism was a major part of media since long before the internet and newspapers pandering to very specific, dishonest biases was also pervasive, but with few genuinely unfiltered alternative viewpoints being available. The difference today is that a real plurality of opinions is finally possible and can be globally made visible. The media gatekeepers hate this and thus create contrived arguments about an imaginary golden standard of media integrity and mass misinformation.
Yep. A wealth tax on billionaires brings in some tax revenue, but that's not the key thing it achieves. It achieves no more billionaires. It is bad for society when one single unaccountable person can accrue this much power.
We just went through a crisis which the federal government - both Trump and Biden administrations - attempted to alleviate by handing people free money. Are poor people better off because of it?
Yeah brilliant “businessmen” are born into rich families and destroy their wealth pretending to be real estate developers and managing to be so incompetent you bankrupt a casino where the house should always win!
adjusted by inflation the stock market only grew by 34.10% between 1900 and 1982 when adjusted and even if dividends were reinvested. And that's total growth, annualized was barely 0.36%
Their wealth wouldn't have increase at all during that period, especially if they wanted to spend 2% each year.
Of course it accelerated massively in the 80s (1900-2024 was 2.48% annualized) but using the average would make no sense.
If you were still very rich in 1982 you would have made a massive amount of money since then. e.g. somebody like Trump invested all of his inherited wealth (and everything his dad gave him before) into the stock market instead of pretending that he was a very "successful" businessman he would have been much, much richer than he was in 2016 and wouldn't have had to be so ashamed about realising his tax returns.
Basically he compares two kinds of growth rates : the growth rate of the 'real' economy and the growth rate of wealth itself. You need the wealth rate to be low enough that rich people want to invest some of it in the real world, not leave it in the bank.
If you do tax the rich, they do very well and you also have money to pay for things like education, roads, affordable housing, medical services, scientific research .. which benefit all and lubricate the general economic market.
If you dont tax the rich, you end up with a gilded age of emperors and kings or a few robber barrons, a small rich coterie around them and the gawping masses of poor eeking it out.
Postwar 70s and 80s were a unusual period of relative lower-inequality, in which we had money in the real economy to develop things.
Garys Economics made an interesting point that inequality _itself_ is a problem - because the actual real value of the world remaining the same [ goods, energy available, land, workers, housing, technology ], when there is higher inequality, then the poor are losing a proportion of that real wealth to the rich. Extreme inequality itself starves almost all the population of a share of real wealth, for them to use their skills effectively - renovate a house, invest in stocks, get a masters degree, do a garage project, travel, have kids, install solar panels etc.