The truth is economic growth hasn’t been occurring in real terms for most people for a long time and the rich have been transferring money from the poor to themselves at a dramatic rate.

I’m starting to think the entire system is corrupt and we are headed for a destroyed Europe and a civil war in the US. Maybe I’m very pessimistic but this moment in history feels like the end of the American empire, what comes after this is extremely uncertain but people only seem to demand a fair piece of the wealth after a world war.

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.

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.

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.

Further to the parent comment, if you park your money in gold or crypto, you’ve given that money to someone else, and so on and so forth.

But there’s a balance to be bad, if no one actually spends anything other than acquiring investments, they starve, and the economy suffers.

Banks can and do then lend out deposited money to other customers, who can then spend it in the economy as they see fit.

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.

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!

It is not true that most countries do not have reserve requirements.

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.

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.

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.

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).

[1] See JP Morgan's consolidated balance sheet as an example, page 206 - https://www.jpmorganchase.com/content/dam/jpmc/jpmorgan-chas...

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.

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

We have gotten used to Congress being dysfunctional and not passing laws that we think the current laws are some unchangeable state.

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.

Just look back to the promises made before the election, how many were never fulfilled?

The left or right are the same side of the coins that the rich will support no matter what.

They shun people like Bernie Sanders, Picketty, etc.

In USA, social programs = socialists = commie.

That's how bad the brainwashing is.

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.

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.

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)

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.

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.

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.

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?

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.

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.

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.

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.

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.

Also, the US has 401(k) savings plans. It is pretty similar to Kiwisave.

Says who? According to whom? Who gets to make that call?

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.

It’s got to be worth a try rather than the disastrous economic policies that got us here.

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.

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.

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.

Wouldn't that inflate housing prices even more? Which disproportionally affect those in the bottom 90% or so.

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?

https://en.m.wikipedia.org/wiki/Base_erosion_and_profit_shif...

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.

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.

[0] https://news.ycombinator.com/newsguidelines.html

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."

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 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?

strenuous effort by their employees or are you telling me that the average billionaire works 50000 hours a day?

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].

[1] https://medium.com/@connorbaldwin28/why-athletes-tend-to-be-...

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.

We just wanted to be the ones setting the rules.

We were quite quick to put our own stamp on the populace. https://en.wikipedia.org/wiki/Whiskey_Rebellion

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.

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.

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.

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.

> that we can

Highways are designed to be unsafe by design, so without a redesign they require speed limits.

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.

See Page #3. https://australiainstitute.org.au/wp-content/uploads/2020/12...

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.

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'.

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.

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.

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.

Capital controls are very seductive, even though they’re very authoritarian.

Come on. You have fallen for cartoon-villain level smack talk. Chew it up, spit it out. We've done this before and we can do it again.

https://taxpolicycenter.org/statistics/historical-highest-ma...

The effective tax rate on the top 1% has been quite stable in the post war era.

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.

https://www.ceicdata.com/en/indicator/united-states/tax-reve...

Here's the income percentage held by the top 1% 1950-2010

http://piketty.pse.ens.fr/files/capital21c/en/Piketty2014Fig...

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

https://taxfoundation.org/data/all/federal/taxes-on-the-rich...

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.

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.

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.

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?

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.

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

The 57% growth is after inflation:

>>...median real income rose by 57% from 1990 to 2019.

('real' income means after inflation, 'nominal' income means before inflation.)

Again: These number are already adjusted for inflation.

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?

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.

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...

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?

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.

IANAE, but this sounds about as implausible as claiming that developers aren’t interested in building sustainable codebases

Worst code quality: AI devs

Best code quality: Game devs

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!

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.

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.

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.

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.

[0] https://www.youtube.com/watch?v=CivlU8hJVwc

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.

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.

To agree with the opposite views mean to disprove their thesis and career.

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.

tl;dr: socialism over capitalism.

> 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.

   > 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.

I expect 90% would be dead within 24 hours, most likely from hypothermia.

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.

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.

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.

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.

Generally those IOUs are real as a ton of gold bars or dollar bills somebody might be hoarding in their vault.

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.

e.g.

https://upload.wikimedia.org/wikipedia/commons/thumb/1/1e/19...

I agree that this is probably a better metric. Easier to visualize and interpret than Gini.

> his nonsense

You could actually try making some coherent arguments before coming out with such conclusions?

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.

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 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?

"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 rich people don't do that.

https://wid.world/news-article/inequality-across-700-years/