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Comment by danhak | Hacker News Reader

> Further, there are an abundance of studies that show that reducing economic inequality (even through redistributive means) actually boosts overall prosperity.

To me, this sentence and the ones that follow are by far the most salient point.

How many Zuckerbergs, Gates, Brins, Pages and Bezos are we missing out on due to the fact that huge swaths of our country do not have the ability to fully explore and develop their talents? How many trillions in lost GDP does that amount to?

To me, this entire debate is a missed opportunity to discuss inequality on the basis of shared wealth, growth and prosperity. Instead we tend to debate these things on a moral dimension which immediately politicizes and polarizes the matter. See renewable energy for another example of how that works.

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I can't think of anything more democratic than using money to vote on how to best allocate resources. The reward for doing well is to get more money to decide how that should then be allocated. This system works great until it crosses a threshold when the most talented consolidate the ability to decide how to best allocate resources into a small group of people. A small group of billionaires deciding how to allocate resources is better but not by much than a small group of people at the Gosbank in the Soviet Union deciding how to allocate resources. Progressive taxation is a good solution. We just need to tweak it until it works effectively. Unfortunately, we have gone in the wrong direction for past couple decades.

I grew up in a scientific community. People innovated and did research because they were passionate about knowledge and learning. Of course, some of them went on to create startups like Biogen but money was never the biggest motivator. I don't buy the argument that taxing the wealthy slightly more than now stifles innovation.

> A small group of billionaires deciding how to allocate resources is better but not by much than a small group of people at the Gosbank in the Soviet Union deciding how to allocate resources.

How is it better even at all, even not by much?

If we imagine that the small group of central planners were actually democratically elected (in the Soviet Union they were not, although they ideologically pretended to be), it's unequivicably _more democratic_ to have them making decisions compared to unelected billionaires who are not in any way accountable to voters.

I'm not quite sure what you mean by 'democratic' when you say you can't think of anything more democratic than those with more money having more political power. I don't see how there's some specific threshold where this becomes more or less true than it was at smaller level of inequality, although it's certainly _less_ democratic the greater the level of inequality, it seems fairly proportional to me rather than there being a 'threshold'.

It seems ridiculously simple to me. Let's define wealth equality as 100 people all with 100,000 dollars a piece. Rather than having a small group of people either in a board room on the top floor of 85 Broad St. or a small group of communists allocate resources, let everybody use their money as a vote to decide how to allocate resources. People need to eat so some money will be spent on food. Most people will need transportation so money will spent on cars and trucks. In order to prevent running out of money people will invest some of it. Several people will purchase farm equipment and start growing food, individual small businesses. Others will create an organization and pool their money together to build a factory to make cars because without cooperation none have enough to cover the startup cost. People are rather stupid so there will be losers and some are smart so there will be winners when it comes to return on investment. There needs to be inequality, it's natural. Nobody needs to starve but people who are better at deciding how to allocate resources should be given more even if they decide to invest in a bigger house and a boat. This works until that small group of people in the board room at the top of the building at 85 Broad St. decide to allocate all the resources to build more houses than everybody else needs and bigger houses than they have resources to maintain. They are able to do that because they consolidated all the voting power of money into their control once a threshold is passed.

Keep the inequality. Some people will make better decisions and then others. The people who make better decisions for example investing the money into research should be rewarded with money and the ability to decide how to best further allocate it including buying a bigger house for themselves or hire a house cleaner because they are busy innovating. There are no problems with that. The problem happens when they become too powerful. The way to prevent that is a progressive tax. In this case, make it very hard but not impossible to get above controlling 1,000,000. No one person and no small group of people are better at making decisions than a large group of people. That is what I mean by wealth equality is democratic. Perhaps, it is better to say there needs to be a wealth equilibrium rather than wealth equality.

I question your assumption that in the actual real world, having more money has any kind of correlation to being a better decision-maker. Also, more power to people who make the best decisions isn't, I think, what people generally understand 'democracy' to be, in part because there's no "objective" way to determine who are the better decision makers.

I also still don't understand why there'd be some 'threshold' (threshold of what?) at which rich people would start making bad decisions (or at least decisions that are bad for everyone that's not them?), whereas before that they would be making 'good' decisions (meaning decisions that benefit people other than them, I guess?).

I'm still not sure what you think 'democracy' consists of exactly.

It's not a threshold of the amount of wealth a person has before he or she makes bad decisions. Have you read James Surowiecki's The Wisdom of Crowds?[1]"Large groups of people are smarter than an elite few, no matter how brilliant—better at solving problems, fostering innovation, coming to wise decisions, even predicting the future." If that is true, no matter how smart or stupid individual people are, a group of 100 people each worth $10,000,000 using their money as a 'vote' will be better at investing than a single billionaire. The Koch brothers have $100 billion between them. They will spend one billion this year on political influence. They control the conservative conversation which has lead to people who follow them controlling a majority of state legislatures, a majority of state governors, the House, the Senate, and the Supreme Court. Those two are not stupid. However, any single person or small group of people with that much power is dangerous no matter how smart they might be. The point isn't to take money from rich people to finally pay for the Iraq war. The point is to take money from the most wealthy to prevent any one person or small group of people from having that much influence. Even the president steps down from power after two terms because our form of democracy doesn't work when someone passes a threshold of power from consolidation. The threshold is an amount of power that is consolidated where a person or small group of people are not longer competitive because they can eliminate all competition. Don't allow the consolidation of wealth into a few too big to fail banks. Break up the banks. Tax inheritance above $10,000,000 90%. Their children can innovate and invest to make money like the rest of us. I don't feel bad for them at all. Have a progressive tax structure using income, capital gains, and corporate taxes to prevent people from acquiring more than $250,000,000. Don't threaten me saying they are going to leave the United States. Please, please, please make them leave. They leave behind Berkeley, Harvard, Princeton, MIT, Cal, Stanford, and every other research school and university which will probably do better without their influence on the faculty. They will leave behind the abundant natural resources and infrastructure which sadly lately under their influence has been neglected. They will leave behind the most productive work force in the world. Americans specialize in management and upper management will see an increase in income without them taking a bulk of it. Please, make them go away.

[1]http://www.amazon.com/The-Wisdom-Crowds-James-Surowiecki/dp/...

>"I don't feel bad for them at all. [...]Their children can innovate and invest to make money like the rest of us"

That's a very negative attitude to have towards people with wealth above some magical number you deem "too-much".

People will get very illogical and angry when they see you blatantly stealing from their children. I know I will, because at the end of the day, I work for my progeny. An estate/inheritance tax is not taking away from my well-being, but from that of my children.

So, instead of fixing the problems with your form of governance, you decide to impose even more tyranny over the few who can possibly take advantage of it. The problem is not the money that allows them to possibly take advantage, but the corruptible system you have in place. Use that effort in making it actually noble like it's claimed to be.

Using money to vote on how to. allocate resources is plutocracy, which is pretty far from democracy.

Exactly. Democracy is designed to prevent the positive feedback loop where people who happen to have more resources can vote for things that gives them even more resources next time. If a system has this feedback loop, it's definitely not a democratic one.

Democracy's weakness is a susceptibility to allowing the people to vote themselves bread and circuses.

I don't see anything wrong with bread and circuses (although I think I prefer pork and porn ;-)).

This actually reminds me of Chomsky, who said that if people are really allowed to vote, they might decide to spend more on education and universal health care, rather than on nuclear weapons. Oh, the horrors!

Progressive taxation is a perfectly acceptable solution. Somewhere, there was some notion that said: "Already-rich people probably make money faster than the less well-off", therefore: "We should tax them more to even things out a little and have an upward push for the less well-off. And on the upside is we have a bit more funding for the state/infrastructure/services.".

The problem now comes that society in general are not happy with the outcomes of the above. It's now less about how to provide for a stable, secure society and infrastructure, and more about how will we "fix everything". I believe the very existence of a state means people will want it to fix things, because it's there.

And now, someone needs to pay for all the "fixing".

But taxes on inheritance and investment are totally regressive (and have become even more regressive), which undermines the benefits of a progressive system for earned income.

There are arguably much more "regressive" things out there, that are completely avoidable.

Inheritance tax, on the other hand, usually has a "lower-bound" that prevents the very poor from being affected.

Taxes on investment? You mean, capital gains? Or something like dividends?

I don't understand how estate and capital gains taxes are regressive. Estate taxes (in the United States at least) only kick in on inherited assets > $5M or so (< 0.2% of estates). Capital gains are AFAIK assessed as normal income for short-term gains (so, progressive) and as a flat (neither progressive nor regressive) rate for long-term gains, and even then, only for people with actual investments, which excludes probably the majority of the poor.

When I think regressive taxes, I think things that are flat fees, or else things like fica, which cut out after a certain income.

Regressive in the general sense--privileging those who already have access to wealth. The long term capital gains rate is a good example.

They are progressive by their implementations, and by the definition of the word progressive.

What it sounds like you are trying to say is that it's not "progressive" enough for your liking. And then you turn the definitions upside down and label it "regressive".

Taxes on inheritance are not regressive when you include a sensible floor. Current US Policy places the floor so this tax only affects families somewhere in the upper 1-10% of wealth.

Taxes on investment are complex. Considering the fact that most humans do not have anything approaching a real investment portfolio, it's hard to understand what you could mean when you say this kind of tax is regressive.

A properly progressive income tax should mean that more people can join the investment class. If the taxation within the investment class is actually regressive, then maybe we worry about that when the majority of humans have this problem.

Inherited wealth shouldn't be taxed at all: the testator has already payed the taxes when he was earning all those money he left. Taxing it again is just plain robbery.

All taxation is already robbery. That doesn't get taken in to account when deciding what to tax and at what rate for any other source, I fail to see why inherited wealth should be the exception.

If you're worried about "double taxation" I've got some bad news for you: That money was taxed many, many, many times before. When it was earned through labor? Taxed. When it was spent in a store? Taxed. When the store owner made an investment in a company? Taxed. When that company issued a dividend? Taxed. "Taxing it again" is the normal state of things.

My argument is that not that the state needs to be 'fixing' things. I'm not saying wealthy people should contribute more just because they are wealthy. It is very unhealthy for the whole if money and the amount of power and control that comes with money gets consolidated into the hands of a very few. We don't need billionaires. I'd much, much rather have 10 people with $100,000,000 than one billionaire; even better is a 1000 people with $1,000,000 to invest. They will keep on make smart investments because they will wont to keep that $1,000,000 or try to get to $2,000,000 or $3,000,000. With the number of people worth more than $250,000,000 that we have now is just a massive disaster that ended with $15,000,000,000,000 debt on the backs of everybody.

>"My argument is that not that the state needs to be 'fixing' things."

But that's exactly what you're advocating. According to this entire discussion, the state itself is broken in this case, and you want to use the state to cap/prevent the ultra-rich as a remedy to it being broken. How does that not count as "fixing things"?

>"We don't need billionaires."

Whether we need them or not is irrelevant, they simply exist. Or is their existence something you want to "fix"?

>"With the number of people worth more than $250,000,000 that we have now is just a massive disaster that ended with $15,000,000,000,000 debt on the backs of everybody."

No, sorry, you have no one but your politicians and political system to blame for that. If you know you have a fallible/corruptible system, and don't change it, then the fault is on you. By you I mean you and the general population. Consequently, if your political system means it is slow to change, and is susceptible to the whims of the public that is easily swayed by the media, then you have to rethink democracy.

One thing that is more democratic than using money to "vote" is using actual voting to vote, whether on policy directly or on politicians who will determine policy.

I've generally agreed with this sentiment and usually sum it up with the thought "One million people will usually better allocate one million dollars than one investor allocating one million dollars". That said, this isn't a hard and fast rule. There are certain types of "moonshot" projects that will never get built under such a scenario because you'll almost always fail to allocate enough money to such projects. Moonshot doesn't even have to mean something like sending a human to the moon. Moonshot can also be relative to an economy locally, like the decision to invest in power plants and transmission lines in many parts of the developing World that are underserved with regards to electricity needs.

A million people with $1 apiece will buy a million McDoubles or coffees. Or a million Candy Crush credits...

It seems to be that people are reacting to a potential threat to an axiom of their's. That is: "Income inequality is bad because A,B,C, and should be prevented at all costs." I'm not saying no part of this is founded in reasoning and evidence, but you are right that the author does not actually respond to PG's sentiment. Rather, his reaction is automatic.

Sounds like you're saying the problem is poverty. That is also what PG is saying. If you want to increase the opportunities for the population as a whole, attacking the income of the rich is not obviously a good solution.

Making it less easy for the wealthy to accumulate wealth exponentially !== attacking income of the rich.

Poverty is always relative and is inextricable from the issue of inequality.

How are the issues you listed relative? How does Mark Zuckerberg being super-rich contribute to "huge swaths of our country do not have the ability to fully explore and develop their talents"?

> How many Zuckerbergs, Gates, Brins, Pages and Bezos are we missing out on due to the fact that huge swaths of our country do not have the ability to fully explore and develop their talents?

But this has nothing to do with inequality. It has to do with "too many people below economic level X". If this seems related to inequality it's because you've already bought into the pie fallacy.

No, it has nothing to do with the pie fallacy. Yes, even the poorest in America lead better lives in absolute terms than most people have throughout history. But regardless of the absolute "economic level x" of the poorest, the wealthiest among us will enjoy disproportionate access to the latest technology, education, healthcare, influence etc.

> the wealthiest among us will enjoy disproportionate access to the latest technology, education, healthcare, influence etc

What exactly do you intend to do to change that? If you start everyone at a baseline level, some of them are going to be smarter, stronger, savvier or whatever, and will be more successful, and thus wealthier, and thus have greater access to whatever benefits that wealth can buy. Even if you zero everyone out each generation, genes matter.

Unless you are artificially suppressing people from rising above mediocrity, you will have some that do better than others.

It seems to me that there is probably some optimized point between total economic equality and extreme inequality. I believe we are drifting further away from that point.

In concrete terms, I don't believe those with pre-existing access to capital should receive privileged tax treatment. I'm im favor of lowering taxes on earned income and raising taxes on inheritance and investment income.

So why should inheritances be taxed again? They've already been taxed at least once - when the original wealth was earned.

If you want positive social mobility, then you need to encourage generational wealth. The rags-to-riches, pull-yourself-up-by-the-bootstraps in a single generation story is more romantic, but the more realistic path to advancement is to build on the foundations of the family nest egg. Taking a haircut on that family wealth each generation makes it harder to climb the ladder from working class to lower middle class to upper middle class.

But why does it seem that the solution is to cap off from those who have more instead of improving the lot of those who have less?

There's the pie fallacy: it would seem that alleviating poverty = alleviating inequality, when for most of history it has been exactly the opposite.

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