
Review: ‘The Economics of Inequality,’ by Thomas Piketty - drallison
http://www.nytimes.com/2015/08/03/books/review-the-economics-of-inequality-by-thomas-piketty.html?hp&action=click&pgtype=Homepage&module=mini-moth&region=top-stories-below&WT.nav=top-stories-below
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jivardo_nucci
The simulation studies of Bouchard & Mezard show that, regardless of initial
conditions, wealth distribution ends up a Pareto distribution with a small
percentage taking almost all of the goods. The take-away of Bouchard &
Mezard's studies: the very rich aren't rich because they earned it (i.e.,
because they are skillful or knowledgeable), they are rich mostly because they
are lucky.

All my life I've assumed that, when people had a going concern or were rich,
that they _earned_ their wealth. But Bouchard & Mezard says they're, for the
most part, simply very lucky.

If luck, rather than skill, is the source of one's wealth, then has one
"earned" that wealth? How can one lay exclusive claim to something given by
chance? I would contend that no such claim can be made.

In particular, I would contend that income gained through luck is fair game
for government acquisition through taxation, and if it is possible to
distinguish that portion of wealth due to skill from that due to luck (and
such appears possible), then the "lucky" portion is open game for acquisition
to be spent or redistributed as decided by the powers-that-be.

Wealth Condensation: Why the Rich Get Richer (and the poor poorer):
[http://iwillknow.jesaurai.net/?p=387](http://iwillknow.jesaurai.net/?p=387)

The Mathematics of Inequality:
[https://www.austms.org.au/Jobs/Library4.html](https://www.austms.org.au/Jobs/Library4.html)

FWIW Bouchard & Mezard are not the only researchers whose models say this:

Chance helps the rich get richer, simulation study finds: [http://www.world-
science.net/othernews/110722_chance.htm](http://www.world-
science.net/othernews/110722_chance.htm)

~~~
hackuser
I'd go even further:

First, consider the distribution of wealth based on consequences of birth,
which is pure luck: Race, gender, socioeconomic class of parents, parental
'skill' (care, skill development, investment in your upbringing, etc.), and
location (e.g. Silicon Valley, rural North Dakota, or North Korea?). Where and
to whom you were born is highly determinative of economic success, but clearly
it is 100% luck and not skill.

Also consider how much of success is due to others. Consider Walmart, for a
simple example. How much of the following did Sam Walton build himself?:

* Infrastructure: Roads, train tracks, airports, etc. for transporting the goods he sells

* The technology of that infrastructure: Who invented and developed automobiles, trains, airplanes, refrigeration, electric lighting (so logistics can operate at night), conveyor belts, electrical generation and distribution, IT, etc.

* The development of the human resources: The education that makes his workers literate and skilled to do their jobs: The schools, the teachers, the concepts, the textbooks, pencils, chalkboards ... we could even say language, mathematics, etc.

* The system of laws and government that protect his business and allow it to operate efficiently (e.g., via contracts, dispute resolution, etc.).

That's just a small sample of what Walmart depends on, that Sam Walton did
nothing to provide. Sam Walton, and many others, built something very
impressive and far more than probably anyone reading this, but it amounts to a
sliver on top of a massive infrastructure built up by generations before him.
He, like the rest of us, needs to contribute his share and build for the next
generation, just like all who came before him.

~~~
jivardo_nucci
1\. Concerning your first argument (consequences of birth):

Since the results of the process (birth and rearing) cannot, in a free
society, be taken away from an individual and used to benefit others, then
what might you propose as a socially acceptable solution? Perhaps a "white
man's tax" to be paid by all men/women lucky enough to be born white? Or, to
generalize, a "race tax" to be paid by all based on the current social or
economic status of each race in the society? Perhaps a tax to be paid by
anyone lucky enough to gain entrance to an Ivy League school (or Stanford) and
so forth.

2\. Concerning your second argument (success due to others):

This argument was presented by Obama in his "...you didn't build that..."
speech of July 13, 2012:
[https://en.wikipedia.org/wiki/You_didn't_build_that](https://en.wikipedia.org/wiki/You_didn't_build_that)

3\. However, in summary, both arguments, although well taken and each worthy
of discussion in it's own right, are clearly not the same as the findings that
Bouchard & Mezard et al present.

Furthermore it is important to distinguish them from Bouchard & Mezard's.
Merging these arguments together with Bouchard & Mezard's in public discussion
would erroneously conflate all these arguments and weaken the impact of
Bouchard & Mezard's findings.

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Gustomaximus
For societal equality 2 things I feel are really important are;

1) Death taxes. This limits dynastic wealth if a decent % is being taken back
every generation. And it creates a desire to make opportunity for the next
generation as it's not so easy to buy this directly. Assuming there is a
minimum threshold so people don't lose their family home this should be looked
at quite positively. You can see it as deferred taxation obligations. Given
the government needs a certain amount, I'd much prefer to pay less tax while
living if I can delay contributions til death.

2) Keeping necessities in life equal access. As soon as the elite can
segregate them-self from public systems like schools and hospitals the desire
to fund and ensure top service levels across these for the masses goes down.
If people making the funding decisions have to use the same schools,
hospitals, pensions, roads etc as the rest of the masses they will ensure
these are funded and functioning well.

~~~
yummyfajitas
The problem with (1) is that a large amount of inheritance taxes are taxes on
illiquid assets. So if you inherit a $10M business, the only way to pay your
tax bill is to liquidate the business. Needless to say, it's bad for society
if a business is shut down simply due to the death of a founder.

The way to resolve (1) is if the IRS allows you to pay taxes on in-kind
receipts with in-kind payments. I.e., if you get a business that the IRS
claims is worth $10M, and you owe $3M in taxes on it, you can pay your tax
bill by handing the IRS $3M worth of shares.

(This would also fix a major problem that startup employees have, namely that
if they quit their job, they need to exercise options and incur a huge tax
bill. But they can't actually sell the shares to get money to pay the taxes.
Not a problem if they can give the IRS some of their shares.)

~~~
obrero
> inheritance taxes are taxes on illiquid assets

This is why estate planning exists. Any business that actually plans for
estate taxes will not have this problem at all.

~~~
yummyfajitas
They have different problems - diverting investments into liquid cash to pay
off tax bills. This is also bad, since rather than expanding a productive
business cash is diverted to creating unnecessary liquidity.

There is also no "estate planning" for various other incidents of the same
issue, e.g. employees cashing out stock options.

~~~
hackuser
> diverting investments into liquid cash to pay off tax bills. This is also
> bad, since rather than expanding a productive business cash is diverted to
> creating unnecessary liquidity.

By that argument, all taxation is bad because it diverts funds from other
purposes. Yet we must pay for government services. Government is an
investment; what you are saying, in effect, is that there are opportunity
costs to the investment - a truth of every investment.

~~~
yummyfajitas
Not all taxation is bad by this argument. Only demanding liquidity for taxes
on illiquid transfers is.

If the government took 30% of the shares of the company in lieu of the same
amount in cash, the issue would be completely resolved. There would be no
reason not to invest in the business - the government takes 30% (or whatever
the rate is) of _shares_ regardless.

The problem is that turning illiquid assets into cash costs extra money.

------
ghufran_syed
I would argue that the difference in lifestyle and wellbeing between the
poorer citizens of North Korea vs South Korea / East Germany vs West Germany
during their respective histories should at least raise the question of
whether reducing inequality by taking more money from the rich, might have
adverse consequences for both rich and poor citizens..? Paul Graham's essay on
the subject is worth reading +/\- refuting if you feel strongly about the
topic:
[http://paulgraham.com/inequality.html](http://paulgraham.com/inequality.html)

~~~
maxxxxx
This makes no sense. North Korea and East Germany didn't do well because they
stifled private enterprise. It has nothing to do with taking from the rich.
Sweden has high tax rates and does perfectly fine.

~~~
ghufran_syed
So you accept that stifling private enterprise is economically harmful to an
economy? How and why did they stifle free enterprise?

If 'free enterprise' has two potential outcomes, 1) 'lose money' (high
probability) or 2) 'make lots of money (which then gets taken by the
government) leaving you a little bit of money' (low probability)

wouldn't that also be 'stifling' to private enterprise? And therefore harmful
to an economy?

Regarding Sweden, it makes more sense to compare things with their natural
control groups if available. If you compare North Korea to South Korea, or
East Germany to West Germany, you remove a lot of the cultural, geographic and
other potentially confounding factors, so the differences in outcome between
those pairs are more likely to be related to the policy differences.

------
clavalle
I'd be interested in an game-theory, microeconomic treatment of decision
making differences between people in different economic situations. If they
study went one step further and showed how those micro decisions aggregated
into macro inequality, that would be interesting to me as well.

Please, if someone knows of some research along these lines I'd love to dive
in. I've done a bit of searching and it seems that most economists focus on
the already somewhat wealthy individuals or entities when it comes to real
life somewhat messy decision making or the poor only in aggregate.

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dataker
A major problem while discussing inequality is that many lose objectivity and
start blaming X/Y party.

Whether right or left, I can think of a dozen issues both could work on: end
lobbying; lower taxes for, at least, the middle class; ending/avoiding
malicious international trade deals; end bureaucratic BS,...

~~~
afarrell
> end lobbying

The problem here is the first amendment. It explicitly protects the right to
assemble and petition the government for a redress of grievances.

~~~
jazzyk
There is a difference between petitioning and bribing. Oops, excuse me, I
meant to say "donating to the campaign".

Or paying $300K to hear them speak for 30 mins:

[http://www.zerohedge.com/news/2015-08-03/everyday-
americans-...](http://www.zerohedge.com/news/2015-08-03/everyday-americans-
hillary-and-bill-clinton-report-140-million-income-2007)

------
charlescearl
[http://piketty.pse.ens.fr/en/publications#AR1PUBENG](http://piketty.pse.ens.fr/en/publications#AR1PUBENG)

------
2anon4this1
These economists love aggrandizing each other by referring to each other's
work as "magnum opuses" and "tour de force", similar to handing out their faux
nobel prize annually to the trendy economist of the moment. It is all part of
their attempt to try to legitimise their vague beliefs as science.

~~~
elchief
Magna Opera and Tours de Force /pedantry

Yes, though, much aggrandizing in academia

