Oh, well done, well done

Inequality exists and

o According to Thomas Piketty will grow as a matter of fact if no action is taken to stop it

o Is as a mater of fact growing

o Is being assisted by various tax haven practices

· Significant inequality is harmful to the well-being of all in society, including the wealthy

The Spirit Level was wrong, Piketty is wrong and global inequality is falling. Three factual errors are not a good start to building an economic program.

34 thoughts on “Oh, well done, well done”

  1. “Significant inequality is harmful to the well-being of all in society, including the wealthy”

    They may possibly be right, but my instinct is that being wealthy doesn’t suck so I’m not prepared to take the risk and therefore will continue to work hard to make us as unequal as possible.

  2. ‘ Is as a mater of fact growing’

    “Mater” is Southern for tomato.

    You say tomato, they say tommato, we say mater.

  3. Inequality is just another SJW reification falacy.

    “Political language . . . is designed to make lies sound truthful and murder respectable, and to give an appearance of solidity to pure wind.” – George Orwell

  4. Inequality is growing *in the USA*. Now, strange as this may seem to some people, the USA is not the whole world.
    The reason why inequality is growing in the USA is that masses of production of goods to sell in the USA is now done in China, lifting millions of Chinese out of real poverty and enabling the US worker to buy a lot more with his salary so those in the US with jobs in the global economy find their salaries buy more, while the guy flipping burgers in McDonald’s has seen no change in his standard of living. It is not that the guy in McDonalds is poorer, it is just that the guy in Apple or Microsoft or Coca-Cola or Goldman Sachs is richer.
    Twenty years ago I calculated that a single mother living on benefits in the New York ghetto was better-off than a bank manager in Albania – that is no longer so because the standard of living in Albania has more than doubled, reducing *global inequality* while the unemployed in New York are only moderately better-off (they are still better-off than the average Chinese or Albanian or … *worker*).
    Murphy thinks that this a “bad thing” – I don’t.

  5. I remember about 20 years ago greens calling for growth in the West to halt and for the rest of the world to catch up. What has happened is even better than that, so I can see that they might be annoyed.

    Picketty, Stiglitz et al. need there to be problems in the free-market system because then the system will need people like Picketty, Stiglitz et al. to address them.

  6. Inequality is a problem because it indicates shortages of certain skills that are in greater demand than we have supply for. You have to pay more for some jobs to get the people to do them. The higher pay initially rations the people available to those applications that make the most use of their talents, in the medium term it motivates more people to acquire the training and experience needed to move into the job, and pays their bills for doing so, and in the long run motivates and pays for R&D to eliminate whatever barriers are blocking more people moving into the job,

    Unequal pay is the mark of a problem that the market has not solved yet, and is at the same time the mechanism it uses to try to solve it. Removing the inequality without solving the underlying problem causing it is like taking painkillers and not treating the condition causing the pain. The answer is always to enable poorer people to do the higher-paying jobs, either by training them, or by inventing technology to bring the job within the scope of more people.

    Taxing the rich and simply giving it to the poor is precisely backwards – it makes the problem even worse. Manufacturers ans service providers still have to pay more to get the skilled to work for them, but now they also have to pay a huge tax bill on top of it too. You take the product they’re delivering even further out of reach of the poor, by raising its price. You reduce the number of higher-paying jobs for people to move into, by raising the price above the point where manufacturers find it worthwhile to employ them. You drain the pool of money being built up to motivate and pay for the technological progress needed to eliminate the block. You perpetuate the problem.

    Tax havens, by contrast, reduce the damage taxes do. We need a lot more of them.

  7. “Unequal pay is the mark of a problem that the market has not solved yet, and is at the same time the mechanism it uses to try to solve it.”

    The market has not duty to “solve” anything.

  8. I don’t see where NiV said it did have a duty. The way I read it is that differentials are both data on supply/demand mismatch and drivers to reduce the gap. Pretty orthodox economics, in other words.

  9. There is a lot of us (the unrich) and not many of you (the rich) -“what you going to do about it?”.

    A potent and effective argument everywhere.

    AKA highwayman gambit.

  10. @ NiV
    Most inequality is simply due to the gradual accumulation of wealth during one’s working life so that one has something to live on when one is unable to work or, for the lucky ones, when onechooses to retire in comfort).
    This is *not* a problem – except for those who believe Picketty.

  11. “Inequality is a problem because it indicates shortages of certain skills that are in greater demand than we have supply for. ”

    These days, inequality in the West is mostly due to governments stealing money from the poor and giving it to the rich.

  12. “These days, inequality in the West is mostly due to governments stealing money from the poor and giving it to the rich.”

    Eh? How’s that work then? The poor don’t have any money to steal. That’s ‘cos they’re poor, see?

  13. Off topic. Does anyone know how you get your avatar photo to show when you post a comment? BinCR, Tim W and JuliaM all manage it. I’m assuming it’s done within the blog posting program, but don’t know which one is being used.

  14. “Does anyone know how you get your avatar photo to show”
    In my case, I think it’s because I signed up with gravatar using the same email address I use when posting here.

  15. Personally I feel everything is just wonderful as it is: I do not feel that Conservative party policy can be improved. Steadily destroying the hated Welfare State may have inflicted hardship on the poor but we don’t like them so the morale boost from pushing them around cheers us all up! And then house prices always rising give us guaranteed capital gains.Its not quite the fascist state we have been denied since the war but now we get to chuck out foreigners ,its as good as.( I leave politics to my social superiors, naturally.)

  16. “The market has not duty to “solve” anything.”

    The market is our great mechanism for solving *all* humanity’s problems!

    People have problems. How to feed themselves, clothe themselves, find water, warmth, security, be healthy, happy, and safe. People have found various ways to solve those problems – by making things, or doing things – that they trade with other people to achieve far more than any single individual could ever learn to do. The basic task of the economy is to solve people’s problems for the minimum amount of effort and unpleasantness, so that each individual benefits: gaining more in each transaction than they give up.

    It’s not a “duty”, it’s an opportunity! If there is currently no solution to the problem, you can’t complain that anyone has failed to do what they promised. But if a solution happens to be invented, the can sell that solution to everyone for less than the experts charge, and make a fortune. You don’t have a ‘duty’ to get rich by solving the problems of millions of other people, but it sure is nice.

    “Pretty orthodox economics, in other words.”

    Yep. But it’s surprising how often people misunderstand it.

    People often seem to think that because Socialists waffle on about inequality as a way to justify their lunatic economics, that sensible economics require that we not care about inequality.

    That’s not necessary. It’s perfectly in accord with free-market thinking to care about inequality – but both the cause and the solution are different to what the Socialists say. That takes away one of the Socialists’ favourite justifications and recruiting calls. There are a lot of people who lean Socialist purely because of that sympathy point. They feel there’s something ‘wrong’ with a system that allows some people to earn millions inventing and providing stuff, and for others to languish flipping burgers for minimum pay. They’re right. We need some of those burger flippers to stop flipping burgers (we’ve got too many) and go invent some stuff (where we’ve not got enough). Then they can be better paid, and we won’t have to pay so much to the current lot. It’s a different perspective on the problem.

    *We* don’t want to have to pay rich people lots of our money, either! We want the solutions they offer, for cheaper, which means getting more people able to provide them. We want to reduce inequality too!

    “Most inequality is simply due to the gradual accumulation of wealth during one’s working life”

    Possibly, but it’s not the sort of inequality they’re complaining about.

    “These days, inequality in the West is mostly due to governments stealing money from the poor and giving it to the rich.”

    Most income tax is paid by the top 10% earners (55% of the tax). The top 0.1% earners pay 11.3% of income tax. Government is paid for by the rich.

    Governments steal money from the rich and give it to the poor, which makes the poor dependent on government for their continuing comfortable lifestyle. (Translation: “Keep voting for me!”) Whereas I’m saying that we should teach the poor to earn it themselves. No more dependency on populist politicians. No more poverty. More production and greater average wealth. But no more reliable votes for Socialist and crypto-Socialist politicians. What government is going to go for that?!

    “Personally I feel everything is just wonderful as it is”

    It is. But things can always be improved.

  17. Possibly, but it’s not the sort of inequality they’re complaining about.

    “Oh, yes, it is!”
    Oh, no, it isn’t!

    Actually, the vicious little buggers switch deliberately between talking about income inequality (JRF and other), wealth inequality (Picketty), equality of opportunity and equality of outcomes, often during the same sentence.

    Hence why (one of the reasons. They also seem to be deaf and, largely, dim) it’s impossible to argue with them, because their argument is dancing backwards and sideways faster than a young Muhammad Ali.

  18. john malpas
    September 24, 2016 at 11:00 pm

    There is a lot of us (the unrich) and not many of you (the rich) -“what you going to do about it?”.

    A potent and effective argument everywhere.

    AKA highwayman gambit.

    ‘Hey you! Yeah, you five really big not-rich guys. I’ll pay you to make the rest of these people go away.”

    A potent and effective counter-argument everywhere.

  19. DBC: I leave politics to my social superiors, naturally.

    Just because Jeremy Corbyn and so many of his colleagues were privately educated, it doesn’ make them better people than you.

    Take heart.

  20. @ NiV
    “Possibly, but it’s not the sort of inequality they’re complaining about.”
    BUT they are citing that, justified, inequality to claim that unjustified inequality is rampant. After working for 50 years, and saving for nearly all that time, I am in the top few % by wealth but not by income so I get included in their statistics for wealth inequality. #1 son brilliant, non-smoker, modest drinker, never ran into debt apart from Student Loan at uni, has negative net assets (due to Student Loan) – but he lives in a better flat than I had at his age and has more discretionary income and (quite sensibly) spends more of it than I did so staggering wealth inequality between the two of us. This, the SJWs exclaim, is unjust!!

  21. BiCR,

    Eh? How’s that work then?

    Climate change, renewable obligation certificates, feed-in tariffs, carbon trading, etc. Rich landowners get rents for having useless wind turbines on their land, middle-classes get subsidised solar panels on their roofs, they both have at least the potential of spare cash to invest in any firms or funds profiting from the boondoggle and even if they’re not actively taking advantage of such opportunities they’re far better able to absorb the increased costs. Living halfway up 10 storeys of piss-soaked concrete affords no such opportunities and energy tends to take a greater part of a much smaller budget. Let alone the number of middle-class tossers getting very nice salaries in universities and all expenses paid trips to the Maldives, Greenland, etc. Climate change must be a contender for the greatest scam on the poor in all of human history.

  22. Most income tax is paid by the top 10% earners (55% of the tax).

    This would be fine if the top 10% earners controlled 55% of the wealth. When they control 75%+ then there is a problem. I’d compare income but most sources only look at earned income. When we don’t count stock options and capital gains the roughly 50% of income of the 10% doesn’t look bad though.

    I am still looking for a good reason why we consider capital gains to be more valuable than work.

  23. @ Liberal Yank
    Over here we don’t and previous Conservative Chancellors thought that we should tax “real” (i.e. adjusted for inflation so ignoring getting back the spending you started with) capital gains at the same rate as income. They made an exception for trivial amounts not worth the effort of calculating by hard-pressed Inland Revenue Inspectors and Save-As-You-Earn stock options aimed at the working class to encourage them to identify with their employers.
    IMHO the “carried interest” provisions are objectionable and “carried interest” should be taxed at the higher of the marginal tax rates when received or “earned”.

  24. Nemo, that’s still not taking money from poor people. It might be diverting it before it gets there but that’s an entirely different kettle of fish.

  25. john77,

    I don’t quite follow. I admit I am not a British tax expert but I though capital gains were taxed at a lower rate than earned income there as well*. Forgive me if I am oversimplifying this but I don’t expect to have to pay British taxes in the foreseeable future. If you are in another country then forgive my complete ignorance of your tax code.

    * https://www.gov.uk/government/publications/tax-and-tax-credit-rates-and-thresholds-for-2016-17/tax-and-tax-credit-rates-and-thresholds-for-2016-17

  26. Optimal tax theory says that we should not tax the income from capital at all. That’s not politically possible but lower rate is better than the same.

    Another argument is that each type of taxation has its own Laffer Curve. The UK certainly claims that the peak for CGT is 28% in the UK at present.

    It really is a very common assumption that capital taxation should be less than income for these two reasons.

  27. @ Liberal Yank
    I said *previous* Conservative chancellors. Since New Labour abolished indexation it is impossible to go back to taxing “real” (i.e. net of inflation) profits as most people haven’t kept adequate records that they never thought they would need from many years ago. The current CGT rate taxes nominal capital profits at a lower rate than real income but is supposed to have a similar impact (of course what that means is that short-term profits are undertaxed and long-term gains are overtaxed)

  28. BiCR,

    While you are correct that it’s theoretically possible to live half-way up a council tower block without using any electricity, reality is in fact absolutely correlated in the other direction. In fact, for people poor enough to find themselves in such an abode, electricity is usually their sole source of energy – energy that already consumes a disproportionate past of their budget, an increasing amount of which is going to the well-off, for whom energy is a lesser part of their budget, and who often can access forms other than electricity, as well as all the other benefits I mentioned yesterday. And if you’re an otherwise useless academic who’s paid tax money by way of the climate gravy train, double plus good – but not so good for low-wage taxpayers.

  29. “This would be fine if the top 10% earners controlled 55% of the wealth. When they control 75%+ then there is a problem.”

    What problem?

    Accumulated money is a measure of the good you have done for the benefit of society that society has yet to repay. People having lots of money in the bank basically means they’ve given more to society than they’ve taken from it. Why would you think that was a problem?

    “I am still looking for a good reason why we consider capital gains to be more valuable than work.”

    Bastiat answered this one back in 1849. At greater length than I intend to here.

    But the simple answer is that capital has already been taxed as income, when it was first acquired.

    For example, without tax you could earn £100 by working hard to help others. Then invest it in somebody else’s business, enabling them to provide yet more goods for society’s benefit, doubling your investment to £200. Alternatively you could tax it at 20% to earn only £80, which you invest and double to get £160. Note that because of the tax you paid on the income, your return from the investment is smaller as well. Instead of being £20 down, you’re now £40 down over where you would have been, because of the income tax you already paid. In effect, capital gains are already taxed at the same rate as your income, by having that much less income to invest. But not content with that, the government takes another slice out of your earnings. Another 20% on your £60 capital gain would cost you an additional £12. Instead of £200 you get £148. That further discourages people from doing the extra work to earn the excess in the first place, and then discourages them again from investing in the other person’s business. The total good done for society by both you and those you invest in is much reduced. Taxing investment more heavily than immediate consumption discourages investment, relatively speaking, to the detriment of society.

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