Hacker News Reader

Comment by readams | Hacker News Reader

People continue to focus on income inequality and ignore wealth inequality. Income is a terrible way understand inequality and also not a good way to compare how inequality is changing, since the really rich people increase their wealth in ways other than income.

The bizarre focus on income means that we set our sights on a weird slice of upper middle class professionals (doctors, lawyers, etc.) while ignoring totally the real rich people.

View on HN

Picketty definitely does not ignore wealth inequality. Most of his book is devoted to explaining why the return on existing wealth is the most important factor in inequality. He proposes a global tax on wealth, not income, to help combat inequality.

I am a fan of the once popular ideas of Henry George. From Wikipedia:

Georgism is an economic philosophy holding that, while people should own the value they produce themselves, economic value derived from land (including natural resources and natural opportunities) should belong equally to all members of society. Developed from the writings of Henry George, the Georgist paradigm offers solutions to social and ecological problems, relying on principles of land rights and public finance which attempt to integrate economic efficiency with social justice.

I would add that today, other common capital could be taxed in the same manner, be it the electromagnetic spectrum, the human audio spectrum, the visual spectrum as well as other so called externalities.

https://en.wikipedia.org/wiki/Georgism

Oddly enough the policy closest to this that I've seen in the US was purposed by Sarah Palin.

"Lt. Gov. Sean Parnell announced Friday that every eligible man, woman and child will receive $2,069, thanks to dividend payments from the state's oil royalty investment program distributed annually. On top of that, the checks will include another $1,200 from the state treasury to help offset soaring fuel prices.

The one-time energy boost was proposed by Gov. Sarah Palin and approved by state lawmakers last month. Palin has since been tapped as the running mate of Republican presidential hopeful John McCain.

"The royalty dollars that flow through the state are the people's wealth," said Parnell. "The $1,200 resource rebate goes to that philosophy.""

http://www.nbcnews.com/id/26564403/ns/us_news-life/t/alaska-...

Perhaps it is not so odd. Georgism seems to be an idea that aligns with interests among both left and right. In particular, it would seem to appeal to both laborers and professionals.

Also, anybody in an urban, flourishing area such as San Francisco, New York, London or my native Stockholm would no doubt resonate with this, I quote further from the linked Wikipedia article, emphasis mine:

> George emphasized ground-rent because basic locations were more valuable than other monopolies and everybody needed locations to survive, which he contrasted with the less significant streetcar and telegraph monopolies, which George also criticized. George likened the problem to a laborer traveling home who is waylaid by a series of highway robbers along the way, each who demand a small portion of the traveler's wages, and finally at the very end of the road waits a robber who demands all that the traveler has left. George reasoned that it made little difference to challenge the series of small robbers when the final robber remained to demand all that the common laborer had left. George predicted that over time technological advancements would increase the frequency and importance of lesser monopolies, yet he expected that ground rent would remain dominant. George even predicted that ground-rents would rise faster than wages and income to capital, a prediction that modern analysis has shown to be plausible, since the supply of land is fixed.

We like to think things are so different from 50 years ago, let alone a few hundred. When I talk to people my age, they puff out their chests and tell me I'm a fool for buying a house. "If you had that money in the market you'd make 7%" they tell me, "What's that house get you 4?" they guffaw. What they miss is nothing has really changed, rent strangles the laborer and professional alike. Sharecropping is alive and well the only difference is we added a commute and called it progress.

I'm not exactly sure what you're attributing to Palin. The base dividend comes from the Alaska Permanent Fund, established in 1976 under Gov Jay Hammond, and started paying dividends in 1982. The $1200 boost maybe comes from Palin? But if that's coming from the treasury, that doesn't seem like the greater part of the "Georgism-like" policy (that part actually feels like poor budgetary policy if it's funded from the state budget as opposed to getting the best dollar for fuel prices for the Permanent fund in the first place...)

https://en.wikipedia.org/wiki/Alaska_Permanent_Fund

Yes, I've always thought it's odd how people tend to focus their ire on high-earning professionals like doctors, lawyers, consultants, etc. while ignoring the trust fund kid worth 200 million dollars. I'm guessing it's because most of us have never met someone worth that much money.

Really, it's the top 0.1% I'm concerned about. Most of the top 1% are basically upper middle class people who've met with significant professional success, and the only part of the middle class that done well the past two decades (and good for them).

I think focusing on the trust fund kid worth 200 million is also a red herring though. The focus should be on consumption inequality, not total amount of wealth. If someone is just sitting on a lot of cash then they're not hurting anyone, but if they're outspending everyone else then they are (in a sense) hurting them.

> If someone is just sitting on a lot of cash then they're not hurting anyone, but if they're outspending everyone else then they are (in a sense) hurting them.

I disagree strongly. That 200 million would be far, far better invested in some pie-in-the-sky social start-up than just sitting there. Spending should definitely not be taxed anymore than it already is, we want people to spend money.

Where do you think people with that much money keep it? I imagine it's invested in all kinds of things, including venture capital and private equity.

When they spend the money, the goods they're consuming or moving around are displaced from where they would have been. Spending the money doesn't create goods out of thin air. So unless they are making an investment that is a good one that somehow no one else knows about, it doesn't really impoverish society for them to sit on it. This argument, of course, applies on the margin and does not apply to every bit of wealth in the system.

Capital without income is not particularly useful. The problem is we use the IRS definition of income ignoring unrealized gains which distorts the income perspective for the top 1% / 0.01%.

Yes, exactly. Rich people increase their wealth primarily through unrealized capital gains. It's very safe for Warren Buffet to proclaim he wants tax rates increased because this barely affects him at all.

I think Warren Buffet actually was talking about capital gains tax. Warren Buffet is old, famous and rich. He's basically won the material game. He doesn't care about taxes, I would guess.

Indeed, he's generally talking about the basket of federal taxes when he makes those comparisons:

http://www.nytimes.com/2011/08/15/opinion/stop-coddling-the-...

Buffet realizes millions of dollars in income each year and gives much of it to charity. He gives billions more to charity not in the form of income.[0]

> “My 2015 return shows adjusted gross income of $11,563,931,” he revealed. “My deductions totaled $5,477,694.” About two-thirds of those represented charitable contributions, he said. Most of the rest were related to Mr. Buffett’s state income tax payments.

> As it turns out, the charitable contributions that Mr. Buffett did deduct from his income make up just a tiny portion of the more than $2.85 billion he donated to charity last year, he said.

[0]: http://www.nytimes.com/2016/10/11/business/buffett-calls-tru...

He is also, along with Bill Gates, a founder of the Giving Pledge, "a campaign to encourage the wealthy people of the world to contribute their wealth to philanthropic causes."[0]

[0] https://en.wikipedia.org/wiki/The_Giving_Pledge

The mere existence of wealth can be awfully distortionary-- consider wealth in valuable land.

Even without an income stream from this land, it makes other land even more scarce, and leads to general unaffordability.

Like most of us I haven't actually read Capital in the 21st Century, but isn't his whole point that the capital gains of the ultra rich outstrip the income of any worker? Anecdotally I hear anger towards hedge fund managers and inherited fortunes, not doctors. And if they are earning a half million a year, I'd hardly call them any kind of middle class.

There were many points in that book, but one of them might be that looking at historical data on income can be a bit easier for data gathering if the civilization in place at the time requires filing of taxes. If those taxes are on income, you get a much better set of visibility for data points than trying to estimate wealth. (Usually it seems taxes are on income...)

One of the amazing things about the book, was separate from ones given beliefs about his recommendations regarding inequality, was that Picketty had painstakingly amassed all this data on income and wealth across a huge range of history, across multiple eras, from before the victorian age in many cases. That alone is a great accomplishment - and lets one start to quantitatively analyze fundamental economic questions of the modern day.

A thought experiment: what would a world look like where wealth caps exist instead of universal basic income? Say, total individual wealth is capped at say, 1000 times the national median per capita wealth? Anything higher and your income is taxed at a very high rate.

They don't ignore wealth inequality. Wealth is harder to measure and because many people's wealth has already been taxed once there's little political support to be had for proposals to tax it again. Of course that leads to runaway inequality, but 'x has too much money and should just have to give up some of it' is not a winning political platform unless you live in a communist country where there's some sort of sociopolitical consensus in favor of that idea (and even communist countries struggle with this in practice and usually end up with corruption instead).

A much worse problem is the focus on inequality of incomes at a snapshot in time.

A doctor may go much of their life with low income, and make it up in their mid and late career. But a 22 year old doctor isn't what we thing of as "poor".

We need to follow people over time and use other indicators to see how poor they actually are. Consumption might be a much better measure in many ways.

In a country where 69% of the population has less than $1000 in savings[1], income inequality is more important than wealth inequality. You need excess income to accumulate wealth.

[1] http://www.forbes.com/sites/niallmccarthy/2016/09/23/survey-...

Savings is a measure of wealth, not income...

And you need excess income to accumulate wealth.

Reply on news.ycombinator.com