
Why Inequality Matters - mhb
http://www.gatesnotes.com/Books/Why-Inequality-Matters-Capital-in-21st-Century-Review?new#
======
ska
"I don’t see anyone on the list whose ancestors bought a great parcel of land
in 1780 and have been accumulating family wealth by collecting rents ever
since."

What you do see though, in the same Fortune 400 list is that 6 of the top 10
people on that list didn't build their companies (in the sense that Bill Gates
did), they inherited them.

I don't know how much the current crop Kochs or Waltons are responsible for
the current success of their ventures, but this is the type of thing I believe
Piketty had in mind as much as the "parcels of land" approach. Also rent
seeking is a problem distinct from a rentier class.

Can you argue convincingly that these people would have been just as
successful without the advantages of their births? I suspect that would be
quite difficult.

~~~
humanrebar
> What you do see though, in the same Fortune 400 list is that 6 of the top 10
> people on that list didn't build their companies (in the sense that Bill
> Gates did), they inherited them.

But 10 out of the top ten did not have billionaires for grandparents. The
Kochs and Waltons are second-generation billionaires. They're not the product
of hundreds of years of steadily accumulating wealth. So there's a flaw in the
thesis that wealth continues to grow. There's a significant amount of churn in
the ranks of the superwealthy.

~~~
m0th87
Piketty addresses this specifically in pointing out that wealth had to be
reconstructed almost from scratch following WW2. If you buy his thesis, then
this wealth _will_ be inherited by third- and fourth- generation billionaires
next, unless another shock at the scale of WW2 happens.

~~~
aidenn0
I buy into that thesis for Europe, but the continental US was largely shielded
from the destruction of WW2.

~~~
m0th87
True! For the US, concentration of wealth was lower than Europe pre-WW2, but
is higher today. According to him, that's because the wealthy here only had to
contend with the Depression, and avoided most of the shocks of WW2.

------
ap22213
"I don’t see anyone on the list whose ancestors bought a great parcel of land
in 1780 and have been accumulating family wealth by collecting rents ever
since."

Piketty makes it clear that America is a special case because of all of the
'almost free' capital in terms of land and population growth that had existed
over the last couple hundred years. But, he claims that America in the future
will more resemble Europe of the last few hundred years.

Also, although Gates claims that half of the richest people in the US have
gotten rich from their businesses (I haven't checked if that's true), he
almost ignores the fact that most of these richest people have come from upper
middle class background, at the least. He also ignores the huge number of
richest people who have attained their wealth from financial instruments.

------
michaelvkpdx
I appreciate Gates' analysis of Piketty, but Gates is still blind to an
important point- he came from a middle-class background and therefore had
enough capital to gain a footing in the world and to be able to write his
initial code without worrying about the basic needs of survival.

40% of youth in the USA today do not even have that, and as such, have
virtually no chance at all of being able to even play in the capitalist
economy. They will be successful if they avoid homelessness and hunger, which
will be a daily struggle.

Gates, Buffett, and others who claim to be philanthropists work from a point
of ignorance, believing that all youth at least have their basic needs covered
by this society. They are blind. Piketty at least acknowledges the
underclasses.

These so-called philanthropists depend on the existence of a permanent
underclass to support their "charity".

I was raised on the edges of this underclass and even today, after 20 years in
the business doing quite well, I worry every day that I will soon be homeless
or hungry. I have no inheritance to count on,other than debt from my family.
The idea of taking a couple of months without income to make a startup is
laughable- how would I eat and make my house payment? Most of the peers from
my youth are on public assistance, in jail, ill, or worse. They are easy prey
for the tech titans, who fill their eyes with glittery visions that make them
forget their hunger and cold. This is in the Bay Area, mind you, less than 20
miles from the Valley.

Gates' idea of a consumption tax would heavily penalize these people, who have
been enslaved into a consumer lifestyle by the wealthy who exercise control
over their lives.

The whole "inequality" debate laments the demise of the middle class. But it
never acknowledges the permanent underclass that is a necessary component of a
society that can take the time for the inequality debate.

I got out, though you never lose the psychic clutches of abject poverty. Most
folks never get out.

~~~
masklinn
> Gates is still blind to an important point- he came from a middle-class
> background

Gates didn't come from a middle-class background but from an upper-class one.
His father was a highly successful lawyer and cofounder of Shidler & King
(then Preston Gates & Ellis, now K&L Gates), his maternal grandfather was an
affluent banker (national bank president) and his mother was a Seattle power
serving on the boards of United Way, UW, US West (then Pacific Northwest
Bell), First Interstate Bank and others.

~~~
johnpenton
That sounds pretty middle class to me. Professional people - lawyers, bankers,
management, etc. The US doesn't really have an upper class at all - just lots
of rich middle class people.

Maybe it's a British thing, but to me class is only minimally about money, so
you can't just say the Gates family are rich so they're upper class.

In Britain you can be penniless but still be upper class, or a billionaire but
still working class. Take David Beckham - rich but working class. You can
probably find some destitute Baronets somewhere who are definitely still upper
class.

~~~
dragonwriter
> That sounds pretty middle class to me. Professional people - lawyers,
> bankers, management, etc.

Professional people (as people who are predominantly workers, but usually not
on living paycheck-to-paycheck and often with small capital holdings that may
suffice for a comfortable retirement) are general middle class, yes.

> The US doesn't really have an upper class at all

The US actually does have an upper class, people who are primarily capitalists
rather than workers.

> In Britain you can be penniless but still be upper class, or a billionaire
> but still working class.

You seem to be describing a pre-capitalist, essentially feudal view of class
(in a capitalist society, meaningful class distinctions still aren't exactly
about _money_ , per se, but more where that money comes from, though there's a
relation between the two -- you can't be penniless _and_ be maintaining a
comfortable standard of living primarily from capital -- whereas in a feudal
class system its more about station of birth independent of money, though, in
societies where such a class distinction is meaningful rather than a mere
historical artifact, there's a close association between that station and both
money _and_ how you get it.)

~~~
johnpenton
Yeah I sort of see what you're saying.

But then do you have a different term for what I'm talking about? What would
you call someone who comes from a well known family lineage, speaks with a
refined accent, was privately educated, went to Harvard, listens to classical
music, collects french poetry first editions, but earns a pittance as faculty
in the classics department at a college somewhere and has no savings or
investments?

They don't earn anything, but you can't lump them in with a poor fast food
worker can you? What term do you use for this in the US, if you don't call it
'class'? If the UK they would absolutely be upper class. What would you call
them?

Here's an insight into the British class system for you: some Army regiments
are essentially segregated by the class of their officers. A state school
educated officer could join the Royal Tank Regiment but would probably never
join the King's Royal Hussars. Of course this is unspoken.

~~~
dragonwriter
> They don't earn anything, but you can't lump them in with a poor fast food
> worker can you?

There's a meaningful _economic class_ distinction to be made, probably,
between a tenured faculty member at a university and a fast food worker, even
if somehow their income ends up similar (the former having greater economic
security than the latter, likely).

But I think the distinction you are making is more about subculture than
economic class. This particular axis of subculture may sometimes be referred
to as "class" (particularly by the people on the "higher" end of it) -- though
its probably less common in the US to do so than it would be in Britain -- but
its really a largely orthogonal concept to economic class distinctions. Not
completely independent though, as -- as many axes of subcultural variations do
-- it can have important relations to social networking opportunities that
play a role in economic opportunities.

This is clearly even more visible, and arguably more substantive, in the
United Kingdom -- where, in addition to the kind of examples you cite, there
are, for instance, still hereditary peers in the House of Lords, and, heck,
still a _House of Lords_ \-- than the United States.

~~~
notahacker
I presume the example university employee doesn't have the luxury of tenure.
The distinction is actually pretty straightforward. The "well-spoken" junior
assistant librarian with their 2:2 in Latin from Exeter could get a job at
McDonalds, if need be. The pretty-smart high-school leaver earning a fair
percentage above minimum wage as a store manager at McDonalds would struggle
to get a job as a junior assistant librarian at a university library even if
they were willing to accept the pay cut.

Needless to say there are also plenty of "uneducated" plumbers whose skills
earn them well above the national average wage whilst many marketing graduates
embark on serial unpaid internships updating Twitter feeds in the hope someone
will eventually deem their university-enhanced flair for on-brand 140
character communication worth paying for.

In the UK more so than most places "economic class" owes as much to
Veblenesque notions of the luxury status of jobs as it does to how much
employees actually earn and whether real opportunities for progression exist.

------
chollida1
Just a heads up about the book. Its dense, like a Nassim Taleb book dense. it
took me over a month to get through it so if you choose to read it, its not a
weekend read.

If you want the highlights, this economist article does as decent a job of
summarizing 400+ pages as you can hope for in 4 paragraphs.

[http://www.economist.com/blogs/economist-
explains/2014/05/ec...](http://www.economist.com/blogs/economist-
explains/2014/05/economist-explains)

As for the content, the main take away, is his r > g argument which is
illustrated by the following chart:

[http://piketty.pse.ens.fr/files/capital21c/en/pdf/F10.9.pdf](http://piketty.pse.ens.fr/files/capital21c/en/pdf/F10.9.pdf)

One of his other big ideas Bill hits on is his tax on captial. Bill proposes a
tax on consumption instead.

> But rather than move to a progressive tax on capital, as Piketty would like,
> I think we’d be best off with a progressive tax on consumption.

Maybe not surprisingly since I work in finance, most of my colleges are on
Bill's side and not Piketty's here. To be fair to Piketty, he chose a tax on
capital because he's coming from a perspective of how do we prevent the
accumulation of wealth over generations, where as Bill is coming at it from
how do we raise enough taxes to pay for the the services the government needs
to provide.

I would recommend reading this book, its clearly a labor of love for him and
he's spent the time to back it up with data, just don't expect to agree with
all his conclusions.

~~~
RockyMcNuts
Nassim Taleb is dense, but not in the way you mean...New Yorker-level hand-
wavy, extreme generalizations, OMG the horror of how stupid everyone else
is...but if you can get past the pompous jackassery it is true there is much
to be learned from him.

~~~
m0th87
It's interesting that you critique Taleb's broad generalizations, and then
typecast him as a handy-wavy New Yorker at the same time.

~~~
Marazan
Taleb starts The Black Swan by criticisng people for using anecdotes to
justify their position. He then uses a series of anecdotes to justify his
position.

As far as I could tell this wasn't done as some kind of meta-commentary on
anecdotes - just a massive lack of self-awareness

------
vannevar
_Contrary to Piketty’s rentier hypothesis, I don’t see anyone on the list
whose ancestors bought a great parcel of land in 1780 and have been
accumulating family wealth by collecting rents ever since._

Bill, you didn't read far enough into the Forbes 400 article, which says:

"We didn’t include dispersed family fortunes. Those appeared on our America’s
Richest Families list, which came out in July."

That money from 1780 is far from 'long gone.' In fact, most wealthy people
started life rich and got richer, largely because they could afford to place
bigger bets in life and take advantage of opportunities for labor-free capital
gains that simply aren't available to people born without capital. Contrary to
Gates' assertion, a 2012 study found that two thirds of the Forbes 400 were
born wealthy
([http://www.faireconomy.org/bornonthirdbase2012](http://www.faireconomy.org/bornonthirdbase2012)).

------
plehoux
Gates described three personas :

1\. One guy is putting his capital into building his business 2\. A woman
who’s giving most of her wealth to charity 3\. A third person is mostly
consuming, spending a lot of money on things like a yacht and plane

All three actually spend their wealth. The problem with extreme inequality is
that really wealthy people can invest, give and spent AND still sit on massive
amount of wealth that get past to the next generation.

A progressive tax on consumption wouldn't be enough to fight this.

One core argument of Piketty is that the actual debate has been highly
distorted by the massive wealth redistribution that happen in consequence of
the first two world wars, something Gates doesn't acknowledge in his review.

[UPDATE] I overlooked the estate tax Gates proposed in his review.

~~~
icebraining
_All three actually spend their wealth. The problem with extreme inequality is
that really wealthy people can invest, give and spent AND still sit on massive
amount of wealth that get past to the next generation._

 _A progressive tax on consumption wouldn 't be enough to fight this._

Gates also specifically talks about an estate tax to prevent the wealth to
pass to the next generation (at least, part of it).

------
selmnoo

        I fully agree that we don’t want to live in an aristocratic society in which 
        already-wealthy families get richer simply by sitting on their laurels and 
        collecting what Piketty calls “rentier income”—that is, the returns people earn 
        when they let others use their money, land, or other property. But I don’t think 
        America is anything close to that.
        Take a look at the Forbes 400 list of the wealthiest Americans. About half
        the people on the list are entrepreneurs whose companies did very well 
        (thanks to hard work as well as a lot of luck). Contrary to Piketty’s 
        rentier hypothesis, I don’t see anyone on the list whose ancestors bought a 
        great parcel of land in 1780 and have been accumulating family wealth by 
        collecting rents ever since. In America, that old money is long gone—through 
        instability, inflation, taxes, philanthropy, and spending.
    

This was a little disappointing to read. Rentier income, in the context of the
book I think includes passed down positions in which the children of the rich
continue receiving that high income. That is to say, could the current owners
of Walmart have been individuals other than the direct descendants of Sam
Walton? If they had been other individuals chosen by a meritocratic criteria
and process, Gates' point would stand. As-is, it does not.

~~~
danielweber
Just reading your quote, Gates didn't say "there is absolutely no one who
inherits wealth or position." The Waltons are incredibly unusual _because_
they've sustained inherited wealth to a second generation.

------
bsbechtel
>High levels of inequality are a problem—messing up economic incentives,
tilting democracies in favor of powerful interests, and undercutting the ideal
that all people are created equal.

I agree with generally all of Gates' thoughts here, but there are two actors
to consider when discussing how to address problems associated with inequality
- the government, and those who own capital. There is an implicit assumption
by both Gates and Piketty that a government is always powerful enough to
control what portion of wealth flows to capital owners, and what portion flows
to labor.

The risk with a powerful government that can do this is it can be bought. A
perfect example of this is Gates own story with The Common Core. From
everything I've read, his own foundation basically bankrolled the lobbying,
acceptance, and implementation of this program, much to the dismay of many
educators I know. As long as a democracy bequeaths power to its government,
there will be moneyed interests lining up to tilt that power in their favor.

The other option is to limit the power the government has to control the flow
of wealth. No one wants to buy a democracy that doesn't have any power to
protect their interests. What ends up happening is wealthy actors have to
figure out other ways to maintain their wealth - consumption in things like
yachts and fancy cars goes down and investment goes up. As investment goes up,
g goes up because that investment is creating more jobs and more competition
for employees, and r goes down because the capital markets become flooded.

~~~
Htsthbjig
"The risk with a powerful government that can do this is it can be bought."

A government can be bought?, your implicit assumption is that a government
powerful enough will serve the interest of others and this is bad.

The problem for me is that a government powerful enough will serve their OWN
interest, the personal interest of the people in power, and this is bad.

Part of my family comes from a former communist country.

In theory, it was "the government of the people", in practice it was the
biggest concentration of power ever in so few hands, the politburo. And the
people there had nothing to do with those that generated wealth.

In theory those in the politburo were not rich, in practice they could do or
get whatever they wanted. Money was not needed for that.

Only one political party, only one company for the entire nation.

This meant you could be the best worker in the world, if someone high enough
wants you to sweep streets, you seep streets or starve.

Not only that, if your brother mother or your sister does something the party
does no like(like not getting in bed with someone up), you will pay for it
too.

People in change of the police(Beria) will rape hundreds of young women and we
will only know decades after with zero consequences to those that took part on
it.

When taxes become too high, over 50% of what you earn, you become a slave of
government. The problem is that for people like Piketty taxes are never high
enough.

Mr Thomas Piketty is French. What we see in countries like France is that 60%
of the economy is public. They become more and more communist-central planned.

Money is wasted in those societies in terrible malinvestments(like the Great
Leap Forward or Qualitative easings), and they never have enough as they are
the most incompetent people around until society collapse.

If you can buy the government, then you are lucky, it means the power is not
monopolized in only one place.

~~~
digikata
I think my concern is that if the power structure is an Oligarchy, it matters
little if the label on the government structure is Communism, or Democracy.
The worry from increasing inequality in the west is that we are approaching
something like the strict power structure of an old communist country, only
from the other direction. E.g. the legal system in America seems to apply
unevenly to different classes of people.

~~~
bsbechtel
I would agree with this. I've often held the view that it hasn't been
Democracy that has made our country great, but it has been the legal structure
that has limited the concentration of power to any group or individual.

There have been a great many Democracies that have failed (although
percentage-wise, I would guess they are on the whole more successful than
other governing structures throughout history).

I agree that today the legal system today doesn't seem to apply fairly. I
don't know history well enough to know if this was the case in the past.

------
k-mcgrady
I've been meaning to get a copy of this for a while. When it first came out
there were a lot of people shouting he (Piketty) was wrong and there were
problems with the data and other people shouting that those first people were
idiots. The debate continued even after Piketty released more data in his
defence. That shouting put me off a bit. It was nice to read a balanced review
from someone I respect and I'm definitely going to read it soon.

~~~
mjn
They're a drier read than the book, but if you're interested specifically in
the data and its analysis, there's a series of journal articles written by
Piketty and another economist, Gabriel Zucman, which have more detail than the
book does, "Wealth and Inheritance in the Long Run" and "Capital is Back:
Wealth–Income Ratios in Rich Countries, 1700-2010". There are preprint PDFs
here, along with some other papers on a similar subject by Zucman & other
collaborators: [http://gabriel-zucman.eu](http://gabriel-zucman.eu)

~~~
k-mcgrady
Wow thanks! Is there a lot of overlap? Might it be worth reading the book as
an introduction and then reading the journal articles?

------
GuiA
> _Take a look at the Forbes 400 list of the wealthiest Americans. About half
> the people on the list are entrepreneurs whose companies did very well
> (thanks to hard work as well as a lot of luck). Contrary to Piketty’s
> rentier hypothesis, I don’t see anyone on the list whose ancestors bought a
> great parcel of land in 1780 and have been accumulating family wealth by
> collecting rents ever since. In America, that old money is long gone—through
> instability, inflation, taxes, philanthropy, and spending._

The USA are somewhat of an edge case here due to their youth. Look at older
countries, such as France (where Piketty and I are from) and you'll see a
marked difference.

~~~
mkempe
Maybe these "older countries" should try --for a century or two-- laissez-
faire capitalism and a government limited to the protection of individual
rights.

~~~
LLWM
It would probably make more of a difference if they tried for a century or two
expanding into a sparsely populated, resource-dense area many times their
current size.

~~~
mkempe
Which is how Switzerland implemented its version of American government,
freedom and prosperity starting in 1848?

------
netcan
Bill gates is impressive. It's a hard subject to stay objective with. The
validity of the data has some level of uncertainty (by its nature). The
interpretation of the data too. I have yet to find an explanation (by Pickety
or others) that made me understand the mechanics of the "Snowball Effect" at
the centre of it all: 'r > g.' Once you get into the soup of morality and
policy, well…

I like how he starts with the things he broadly agrees with. Even just
agreeing that extremely uneven distribution is a problem and why, gives us a
starting point. I personally take a slightly Marxist view on this. I don't
think that extremely uneven distribution is politically stable, or compatible
with democracy.

I am slightly doubtful of taxation as a solution. Taxation is stuck really.
The problem is that most tax regimes are designed to maximize tax revenue
while minimizing damage to the economy.

Consumption/sales taxes, income taxes and other middle class taxes are
convenient in that they are very hard for people to avoid and they don't
affect behavior much. marginal income tax of up to 60% is generally assumed to
have a negligible effect on how much people work.

A 1% annual tax on wealth equates to a $10m annual cost of living in a country
for a billionaire. Would they move (themselves and/or their wealth) to avoid
it? Can some of that $10m be used to find ways of avoiding the rest of it?

I think that ultimately, wealth accumulation needs to change in order to
change the structure of the economy.

Also, I like that Gates considers cultural norms, not just policy. What Gates
& Buffet have committed to is a partial solution. If 20-30% of billionaires do
this, it might be enough to change overall distribution somewhat.

In any case, more questions than answers.

~~~
123testaccount
With regard to the mechanics of the "Snowball Effect", my understanding is
that the flat tax on capital gains vs the progressive tax on income is one
cause in the US.

I would speculate that one other mechanic has to do with time. For the vast
majority of people there is a hard cap on wage income based on the hours they
can possibly work in a day. People who have money to invest can put that to
work for them offline, so to speak.

And at a certain threshhold a person can put their money to use to pay for
specialized labor (tax attorneys, finance managers etc) to receive an even
greater return.

~~~
netcan
r = return on capital. g = overall economic growth. If capital returns 6% this
year and the economy grows b 4%, it means that capital + this year's return
grew by more than the economy did overall. This leaves a smaller share for
labour.

But I'd like to have a better understanding of the year over year mechanics.
Anyone have a good explanation. I'm willing to put in some effort.

------
r0h1n
I must say Bill Gates, in his post Microsoft avatar, continues to surprise me
constantly. This is a refreshingly candid and sanguine review of Piketty's
book from someone who was a ruthless capitalist not so long ago.

Gates rightly (and self-servingly) also points out that Piketty does not
consider philanthropy as a means to correct some of capitalism's imbalances.
Here's a few of Gates' conclusions:

> Piketty is right that there are forces that can lead to snowballing wealth
> (including the fact that the children of wealthy people often get access to
> networks that can help them land internships, jobs, etc.). However, there
> are also forces that contribute to the decay of wealth, and Capital doesn’t
> give enough weight to them.

> I am also disappointed that Piketty focused heavily on data on wealth and
> income while neglecting consumption altogether. Consumption data represent
> the goods and services that people buy—including food, clothing, housing,
> education, and health—and can add a lot of depth to our understanding of how
> people actually live. Particularly in rich societies, the income lens really
> doesn’t give you the sense of what needs to be fixed.

> Piketty’s favorite solution is a progressive annual tax on capital, rather
> than income. He argues that this kind of tax “will make it possible to avoid
> an endless inegalitarian spiral while preserving competition and incentives
> for new instances of primitive accumulation.”

> I agree that taxation should shift away from taxing labor. It doesn’t make
> any sense that labor in the United States is taxed so heavily relative to
> capital. It will make even less sense in the coming years, as robots and
> other forms of automation come to perform more and more of the skills that
> human laborers do today.

But rather than move to a progressive tax on capital, as Piketty would like, I
think we’d be best off with a progressive tax on consumption. Think about the
three wealthy people I described earlier: One investing in companies, one in
philanthropy, and one in a lavish lifestyle. There’s nothing wrong with the
last guy, but I think he should pay more taxes than the others. As Piketty
pointed out when we spoke, it's hard to measure consumption (for example,
should political donations count?). But then, almost every tax
system—including a wealth tax—has similar challenges.

Like Piketty, I’m also a big believer in the estate tax. Letting inheritors
consume or allocate capital disproportionately simply based on the lottery of
birth is not a smart or fair way to allocate resources. As Warren Buffett
likes to say, that’s like “choosing the 2020 Olympic team by picking the
eldest sons of the gold-medal winners in the 2000 Olympics.” I believe we
should maintain the estate tax and invest the proceeds in education and
research—the best way to strengthen our country for the future.

~~~
saalweachter
The problem with differentiating between the "good investor" and the "lavish
lifestyle guy" is that the good investor is actually the one that you (rather,
Piketty) need to be most worried about.

People worried about inequality aren't (just) worried about the morality of
consumption -- a fat cat sitting atop a mountain of cash drinking champagne
and eating caviar while the peasants starve. They're worried about maintaining
a democratic society, where everyone gets roughly an equal say in how things
go. Highly concentrated wealth is a threat to that. Someone with enough money
can single handedly change the course of politics (by funding candidates,
lobbyists, or directly bribing various parties), public discourse (by
controlling media corporations and through them who says what on TV or in
print), and even science itself (by funding some researchers and not others).

The sleazy but short-sighted hedge fund manager bringing in a million plus a
year but spending it all on yachts and McMansions isn't a threat. Bill Gates
and Warren Buffett, the good investors, are the ones walking around with
nukes. They could choose to blow us up at any time, and it's only through
their continuing mercy that they haven't.

Wealth taxes are about disarming everyone -- good and evil -- for the safety
of us all, not about morality.

~~~
Taek
One thing that always bothers me about wealth distribution is that you can't
simply move wealth around and expect things to get better. People who have
wealth are going to be better with that wealth than people who don't. They
grew up with wealthy people, have managed the wealth for a long time, have
witnessed mistakes and successes, and overall have spent a lot of time
contemplating wealth.

If you take that wealth and move it to the average person, even if their
fundamental intelligence is equivalent, their experience, education, and
exposure is going to be a lot lower.

"They're worried about maintaining a democratic society, where everyone gets
roughly an equal say in how things go."

It's an unpopular opinion, but I don't think that everyone should have a
roughly equal say in how things go. The average person isn't as well equipped
to deal with large problems as the elite are. Everyone has different
specialties, and different volumes of abilities. You wouldn't let an intern
have an equal say as a senior engineer when designing the core infrastructure.
You especially wouldn't let the janitor have an equal say - he's got no
experience in desiging such things!

I'm always very uneasy about equality talks because all people are not equally
suited to make global policy decisions. Nor are they equally incentivized to
make the most informed and rational decisions.

I'm not saying that there isn't a problem or that we shouldn't do anything
about it, but I am saying that I disagree with an egalitarian approach. We
want the majority of decisions to be made by people who understand what they
are deciding and have lots of experience, not to be made by individuals who
mostly understand the topic from a single reddit thread. We want to make sure
that the incentives of the people in power are aligned with the people who are
not in power, but leveling the playing field is not an approach I find
valuable.

~~~
nhaehnle
_> It's an unpopular opinion, but I don't think that everyone should have a
roughly equal say in how things go. The average person isn't as well equipped
to deal with large problems as the elite are._

To really get to the truths behind this opinion, it is important to
distinguish one's political goals from the politically implemented policies in
pursuit of those goals.

I fully agree with you that the average person is not well equipped to decide
on policies. _However_ , the vast majority of people in the elite aren't
equipped for that either! Look at somebody like Bill Gross, for example, who
was removed from PIMCO after continuously making bad investments based on his
misunderstanding of basic economic facts. I wouldn't want somebody like that
calling the shots in government.

Honestly, I would expect the connection between _wealth_ and quality of policy
analysis to be relatively weak. Education is certainly a confounding variable,
but not all education is equal. (A good computer scientist doesn't necessarily
make a good economist.) In fact, in certain policy areas such as economics,
being part of the elite - which usually means being a high-level executive -
is probably a _negative_ for the quality of your policy analysis, because
executives see the world from a micro-economic perspective rather than from
the macro perspective that is needed in politics.

In any case - I agree that a certain level of "elitism" is probably justified
when it comes to the question of policy analysis, though you really have to be
_very_ careful who you think the "elite" is in that context.

However, if you leave politics up to an elite, then the _goals_ of politics
will also shift to match the goals of that elite, which is probably not a good
representation of the goals of the overall population. And therein lies the
real crux, because when it comes to deciding what the political goals should
be, everybody really does have the same qualification. And this is ultimately
the reason why democracy is the right way to go.

The tough problem is to establish institutions that translate democratically
established goals into good policy.

~~~
_delirium
> Honestly, I would expect the connection between wealth and quality of policy
> analysis to be relatively weak.

Listening to the Walton heirs speak is a good way to be cured of any
assumption that the economic elite might actually be smart. (And if you don't
like listening to them _speak_ , you can just read about the repeated DWI
convictions.) That's 4 of the top 10 richest Americans right there.

------
grondilu
> I fully agree that we don’t want to live in an aristocratic society in which
> already-wealthy families get richer simply by sitting on their laurels and
> collecting what Piketty calls “rentier income”—that is, the returns people
> earn when they let others use their money, land, or other property.

This is debatable. For one, aristocracy is not exactly this, as it is a system
based on the notion of privilege, not just wealth. Concretely, it often means
the same but still, using the word is quite misleading.

Secondly, one may argue that people, and thus families, should have the right
to build stuff in the very long term, that is in a multi-generational way.
Even if this thing they build is merely a framework of financial comfort. I
doubt anyone would question the morality of offering gifts to children. So
it's not clear to me why it would be wrong to give a child the means not to
worry about money in life, and do it recursively through centuries.

------
sharemywin
This is where it gets complicated for me. Gates value judges the rich person
spending money on a yacht and plane. Planes and yachts are pretty complicated
gadgets that employ a lot of engineers and others. The plane makers technology
might even contribute to some other kind of businesses similar to the space
program in the sixties and seventies. Where as tech companies sitting on piles
of cash because they don't know how to spend it seems like a bad use of
capital to me.

~~~
wes-exp
Employment is all good and well, but one needs to consider: what are the
second-order effects of that action? For instance, you could employ people to
dig holes that serve no purpose. Or, you could employ people to build public
infrastructure that continues to pay dividends over its lifetime.

Buying the yacht is a little bit like digging useless holes, because it's
basically a very costly form of recreation that doesn't do much for society.
Ideally, money goes into things that both employ _and_ have desirable second-
order effects.

~~~
humanrebar
> For instance, you could employ people to dig holes that serve no purpose.
> Or, you could employ people to build public infrastructure that continues to
> pay dividends over its lifetime.

I heartily agree with this. However, you could be understimating _positive_
secondary effects. Private space travel, for example, is subsidized in part by
rich people spending on luxury goods (trips to space, hobby projects, etc.).

And besides, most of the people concerned about inequality in this thread want
to see a more progressive tax that seems to be an end to itself. To be
charitable, I'm sure they would like to see those taxes applied to re-
distributive programs, but it's not clear to me that those programs won't also
lack the "desirable second-order effects" you are looking for. In reality,
taxes go to the general fund and then get spent on whatever the federal
government wants to spend it on.

~~~
wes-exp
All good points. I wasn't trying to suggest a solution, but merely trying to
point out that job creation should not be the sole bar by which we measure the
investment of capital, but that it should do something useful too — whether
that investment comes from private actors, or government.

------
jotm
_" A third person is mostly consuming, spending a lot of money on things like
a yacht and plane. While it’s true that the wealth of all three people is
contributing to inequality, I would argue that the first two are delivering
more value to society than the third."_

Really? I always considered this kind of spending a good thing for society.
Other businesses and people get that money, they create technology, materials
and processes that would likely not exist otherwise, there's still tax being
paid along the way and we get a bit of cultural heritage as a bonus (castles,
boats, planes, cars, the Sistine Chapel, a lot of paintings - all of which
exists only because some rich man decided he wanted it).

Taxing luxury is a mistake and a potential slippery slope IMO. IIRC, the US
tried it in the past with disappointing results.

~~~
simoncarter
I was about to ask this question, though not sure I can share in the
conclusion. I was under the impression that people who spend money on
consumables help drive the economy, though this might be tangential to the net
value to society of each dollar spent. Further, as I understood, taxes on
consumables such as VAT, which is how I assume one would go about dealing with
that third category of wealthy person, tends to disproportionately impact the
poorer in society, at least from what i've read in the news.

------
lifeisstillgood
Not your average book review ("Piketty kindly spoke to me on a Skype call
...")

And oddly chimes very well with my own views on Piketty. (Yeah, me and billg,
great minds you know:-)

The Tl;dr is perhaps _rd >g_ is a better formula where d is rate of decay of
wealth. And "yes we need a wealth tax, can we make policy to differentiate
between good wealth (used for socially beneficial purposes) and bad wealth
(yachts, coke and hookers)

I agree but that is a solution to late - "if we have robber barons we should
encourage them to be philanthropists" is missing opportunities to use
regulation and competition and externality pricing to flatten the _profits_
accruing to monopoly holders and so reduce the amount of wealth horsing in the
first place.

That said nice piece, and billg still gets my vote for top ten nicest
billionaire.

------
esfandia
Philanthropy strikes me as anti-democratic. Why should the rich get to choose
which causes are more deserving of their generosity? Let the elected
government pool the money and make this determination.

~~~
noarchy
>Philanthropy strikes me as anti-democratic. Why should the rich get to choose
which causes are more deserving of their generosity? Let the elected
government pool the money and make this determination.

The reason the rich get to choose is because it is their money. Just as you
can decide, today, to donate your money to the charity of your choosing. And
really, this isn't any different from asking why the rich (or you or me) get
to decide which car or house to buy.

If government is failing to give your money to areas where you think it should
go, perhaps this is what is anti-democratic.

~~~
crdoconnor
>The reason the rich get to choose is because it is their money.

This presumes that most, if not all of the money gained by the rich is justly
earned. I would take serious issue with this.

~~~
noarchy
>This presumes that most, if not all of the money gained by the rich is justly
earned. I would take serious issue with this.

Case by case, you may or may not have a point. Is the alternative to have the
state take the money and spend as it wishes? In such a case, is the money
"justly earned" if it was taken by force?

~~~
lmm
Everything bottoms out at force; most of us consider taxation as just or more
so than the way the rich acquire their money. The state is a bit more
legitimate than rich individuals because it's more accountable to the people.

~~~
noarchy
>The state is a bit more legitimate than rich individuals because it's more
accountable to the people.

That isn't necessarily a universally-accepted idea. Democratic systems have
the machinery of accountability, but some of us are not completely convinced
that it _works_ ; surely not as-advertised.

I know that some will regard the wealth of the rich as having been acquired by
some means of trickery or even coercion. And that may even be true in some
cases. But it is true of taxation nearly 100% of the time, as states must use
the threat of force to acquire that money.

~~~
lmm
Nowhere near 100%. Most people pay their taxes not because they're rationally
responding to threat of force but because they think it's the right thing to
do.

~~~
noarchy
>Nowhere near 100%. Most people pay their taxes not because they're rationally
responding to threat of force but because they think it's the right thing to
do.

As a thought experiment, imagine that taxation became completely voluntary
tomorrow. What percentage of its former revenue does the government make?

Suddenly, the government has to compete with other entities for money.
Government doesn't know the competition game, so how well would it fare? It
would be an interesting experiment, though it would undoubtedly cause some
short-term chaos.

~~~
lmm
The experiment's already been done. No-one descended from the heavens and
imposed our current governmental system; what we have now is what people did.
If you remove the government, people band together into organizations that
behave the same way: first you get something like a union where people pay
dues and get certain benefits, their decision making structure evolves, and
eventually the organization decides to cover everyone and force everyone to
contribute. (It's been quite amusing to watch this happening in miniature in
eve online)

Of course it's possible to set arbitrary rules under which a government
doesn't form, or corporations provide something better, but those rules end up
being very arbitrary.

~~~
noarchy
>The experiment's already been done.

I'd love to hear about it.

>No-one descended from the heavens and imposed our current governmental
system; what we have now is what people did.

"What people did", isn't what you or I did, necessarily. Are you making the
classic HN error of assuming that every reader lives in your country (usually
the US)? Or do you think that every government is legitimate, no matter what,
so long as it is not overthrown?

>If you remove the government, people band together into organizations that
behave the same way: first you get something like a union where people pay
dues and get certain benefits, their decision making structure evolves, and
eventually the organization decides to cover everyone and force everyone to
contribute. (It's been quite amusing to watch this happening in miniature in
eve online)

Eve Online is not a great example, imo, for a few reasons. First the
corporation tax is built into the game's mechanics. It is _assumed_ that this
is must be how all corporations will work. But that's less of an issue than..
Two, corporation membership is indeed voluntary. It is exceptionally easy to
leave a corp (minus a potential 24 hour stasis). Even if you're deep in
nullsec, you can get out. If you die trying, no big deal. This is _nothing_
like living in a modern state, where even leaving said state can be subject to
prohibitive border controls. And getting shot by an agent of the state doesn't
exactly follow by you ending up in a station where your clone was located. The
involuntary nature of the state and the very real consequences of what it does
immediately separates it from something akin to an Eve corp.

>Of course it's possible to set arbitrary rules under which a government
doesn't form, or corporations provide something better, but those rules end up
being very arbitrary.

I don't think there's any doubt that if a government suddenly didn't exist, or
could no longer pay its bills that we'd see alternative institutions take up
the slack in certain areas. But it isn't necessarily a state entity that would
do so, and this is clearly a main point of disagreement here.

~~~
lmm
> Or do you think that every government is legitimate, no matter what, so long
> as it is not overthrown?

There are levels between "do nothing" and "overthrow". I don't think
legitimacy is a binary thing.

> I don't think there's any doubt that if a government suddenly didn't exist,
> or could no longer pay its bills that we'd see alternative institutions take
> up the slack in certain areas. But it isn't necessarily a state entity that
> would do so, and this is clearly a main point of disagreement here.

I think (in this arbitrary and unrealistic scenario) those "alternative
institutions" would be or rapidly become very governmentlike; whether they
would be institutions with a flag and a seat the united nations is not
terribly important. Honestly I don't see much difference even today between
governments, large NGOs, and large corporations; all have similar
decisionmaking processes and act in similar ways (though as I said, I think
accountability is better for governments - and probably even worse for large
NGOs). Some people consider a "monopoly on violence" to be a qualitative
difference between government and non-government large organizations, but
these "alternative institutions" in your scenario would definitely have to be
willing to back up their policies with force, so they'd be governmentlike in
that respect too.

------
harmonicon
I have a lot of respect for Bill Gates because of his philanthropic efforts.
However, I am very skeptical of the consumption tax argument. To me that
sounds like a sales tax and sales tax is regressive. i.e. Tax on French
baguette hits the poor more than the rich, since as a group they consume way
more baguette.

Even if it is just a special sales tax that targets the rich only,
discouraging spending by people with money can hardly be a good thing; that's
how recession happen and the rich will continue to capture a bigger share of
the total wealth. For an economy to flourish we need the wealth to flow from
individual to individual. If all the water on earth is stuck in the ocean we'd
have serious problem. Same with wealth.

~~~
freshyill
It's true that most sales taxes are regressive, but you can have progressive
sales taxes as well. A few examples:

In New York, there's no tax on clothing and shoes under $110 (at least that
was the number when I lived there a few years ago). If you're buying stuff
that costs more than that, then you can probably afford the tax, since there
plenty of completely fashionable and functional items that cost far less.

In many (most?) places, there's no sales tax on most foods you'd buy in a
supermarket, but there is on prepared foods and restaurant meals.

You could probably take these even further by raising the taxes on more
expensive clothing items. If you're buying a $1,000 purse or eating a $500
meal, you can probably afford a higher tax rate.

It would probably be challenging to apply a progressive sales tax to
everything, but it's certainly possible for many purchases.

~~~
notahacker
It is possible to make sales taxes that aren't massively regressive, and your
examples are a lot better than most of the "progressive" consumption-only tax
proposals (which generally revolve around giving a basic rebate and then
taxing yachts and basic foodstuffs alike)

But the bigger problem isn't the proportion of consumption being taxed, but
that the very rich actually consume very little of their income (which implies
higher taxes for everyone else). To be fair to Bill Gates, he also favours
high taxes on intragenerational transfers of all that accumulated wealth and
is busy giving his own self-made fortune away. But even then, consumption
taxes miss one of the biggest, if not _the biggest_ benefits to holding large
amounts of wealth.... being able to choose exactly when, if and on what terms
you spend your "work" time. A person who consumes $100k per annum in interest
income from their professionally-managed wealth fund which is so big they
never have to worry about their future is _much, much_ better off in real
terms than somebody spending a little over $100k from a salary they spend 50%
of their waking hours earning not to mention many hours worrying about what
would happen if they lost that job.

Obviously the status quo income tax isn't ideal in that respect either, and
ramping up tax on capital gains has the side effect of harming good companies'
chances of getting funded, but that's why Piketty favours taxing the entire
capital base rather than only capital which happens to be spent on luxury
shoes or earning a decent return on investment.

------
penprog
Why would we want to tax consumption of the wealthy (or anyone)? Don't we want
to promote spending? The tax code should reward those that make investments,
purchases, and donations. Not punish them. They should punish those that sit
on their wealth and do nothing with it.

~~~
akmiller
Spending doesn't do as much as starting or investing in new companies or even
philanthropy itself.

Gates and Pickety agree on the estate tax which would help for people trying
to sit on their wealth and simply pass it along to their heirs. Of course the
estate tax needs some improvements.

------
taeric
"For example, a medical student with no income and lots of student loans would
look in the official statistics like she’s in a dire situation but may well
have a very high income in the future."

Not that I really disagree with the point here, but I can't help but wonder
whether or not the people in the categories he listed exist in large enough
numbers to get out of the noise category. Heck, I would think there are about
as many literal lottery winners as there are folks in this category.

~~~
josefresco
I had the same impression after reading these "examples" They seemed like
massive outliers and not worth evening mentioning. Also, someone in medical
school (or any schooling) isn't guaranteed riches. One could argue that a
student in medical school with hundreds of thousands of dollars in debt is in
fact, still in dire straits despite their future earning _potential_.

------
CharlesGust
Bill Gates gives sound reasons for maintaining the estate tax, and I agree
with the general proposition of having something like a consumption tax. But,
I have a different take on the social utility of capital transfers.

Yes, what you invest in you tend to get more of. But, each capital transfer
does not destroy the capital. So, if you are buying a yacht, that capital goes
to the designer, the builders, the welders, the suppliers, etc. Now, the point
is that these people now have their own choices to do something with the
capital received. Some of it will go for food, some of it will go for BBQ
grills, some of it will go for big screen TV's. And, then the people receiving
that capital will make their choices ad infinitum.

(Perhaps a performance artist alighting a million dollars in cash would
actually destroy capital. They are undoubtedly more examples of waste)

I guess I can still see the incentives that would be built into a tax system
(as they are built into ANY tax system) to alleviate what may otherwise be
burdens on government into encouraging more social utility. But, I just wanted
to emphasize that it is not that luxury spending has NO social utility, it
just diffuses the social utility into multiple second order spending
decisions.

------
mgulaid
Economists don't consider philanthropy a strong factor in economic development
or advancement. Philanthropy IMHO has never contributed significantly to lift
millions of people out of poverty. Although Gates Foundation and similar NGOs
are doing wonderful deeds in Africa and the USA, it will not have the same
impact as tax structure/incentives, trade policy, labor laws, access to
education, immigration laws, etc. Also how do you define philanthropy, the
work of the Koch brothers can be considered philanthropic in some peoples'
opinions. Philanthropy is personal and political exercise.

I think philanthropy is great, but only few people are doing it. And those who
do it, don’t do it effectively, do it too late, or focus on the symptoms
rather on the causes, which are much harder to deal with. Philanthropy has
become an accessory or a career suffix for those have got lucky.

Gates talks about the middle class in China and else where is getting bigger.
True, but philanthropic has little to do with this improvement. Aggressive and
central economic management, and free trade policy with the US helped above
mentioned countries to sustain a healthy middle income class in China, Mexico,
Colombia.

------
squozzer
I think what people miss about consumption taxes - beyond its' regressive
nature - is that everything in the end is a form of consumption. The
distinction between capital, labor, and consumption is false - it only has
meaning once you account for expected outcome.

Capital = purchases expected to generate a profit. Labor = purchases expected
to generate work. It need not generate a profit necessarily - e.g. paying
someone to mow your lawn. Consumption = purchases expected to generate
pleasure, or avoid pain.

I'm sure the basis of these distinctions rest on some idea of social utility -
that trying to turn a profit has more social utility than eating a Twinkie.
Maybe we should examine that assumption also.

And consider how these notions entangle themselves in practice. A company car
intended for non-personal use is considered an asset to the company, and
treated as capital. But a similar car used for commuting is considered a
consumption item.

------
mempko
I am going to repeat here, what I posted on hist site.

Mr Gates,

I am hoping you posted this not only to express your opinion, but to engage in
conversation. And it appears you certainly are.

My criticism with your response is that philanthropy distorts economic
resources through a similar mechanism that consumption does.

That is, by dictate.

I believe in the idea that people who are affected by decisions made should
have a say in those decisions. This is the value of democracy.

And just like consumption of fine wine and jewelry distorts the economy to
produce more of those things, philanthropy moves vast economic resources for
what I would call "the pet projects of philanthropists". Typically the people
affected by the philanthropic expenditures have no say. More often than not,
no democracy processes take place.

A king who lives a modest lifestyle, who spends all his wealth on what HE
thinks is just and good, is still a king. And I hold contempt for his
arrogance.

~~~
JeffL
Very interesting and thought-provoking point. Although on the other hand, I
personally think that Bill Gates, acting as a king and trying to figure out
what he thinks will do the most justice and good, is going to do better for
the world than what people in a democracy will vote for themselves. Democracy
has given us unbalanced budgets, runaway debt, pointless wars, and corrupting
entitlements. Bill Gates is doing some amazing and wonderful things.

Not saying that monarchy is better than democracy. Democracy is best at
protecting rights, which is the function of government. But as for making the
world a better place, really, individuals are probably best at that.

~~~
mempko
I am guessing when you say "democracy" you are referring to places like the
USA?

If so, let me ask you a question. Do you feel that you have a say in decisions
that affect you day to day?

If the answer is no, I feel it isn't fair to blame the problems we have on
democracy.

As for what the system the USA has, well, these guys think it is a Plutocracy
[http://politicalgates.blogspot.com/2011/12/citigroup-
plutono...](http://politicalgates.blogspot.com/2011/12/citigroup-plutonomy-
memos-two-bombshell.html)

------
tn13
Whether or not inequality is a problem can be debated but we must be beware of
that "I am from Government and I am here to help" trap.

\--- Governments can play a constructive role in offsetting the snowballing
tendencies if and when they choose to do so. --

Governments of course could play a constructive role into many things just the
way my son could spend more time doing math instead of watching cartoons. The
sad problem about human beings is that unless they get something out of it
they wont do anything. Government have a strong incentive to tax everyone more
and more in the name of inequality and environment but they have 0 incentive
to anything about inequality using that money.

I would rather live in a world with extreme inequality rather than a world
where government is trying to bring "equality".

------
Joeboy
> I think we’d be best off with a progressive tax on consumption

In theory I like the idea of a "tax on consumption", because it suggests a
penalty on conspicuous consumption and wasteful spending. In practice, taxes
on consumption are seen as regressive, ie. they affect the poor more than the
rich. Is there a way to tax "bad" consumption, without penalizing people who
"consume" a large proportion of their income simply because they don't have
much of it? I'm picturing some byzantine tax code system where functionaries
make value judgements about the morality of various kinds of goods.

~~~
crdoconnor
>In theory I like the idea of a "tax on consumption", because it suggests a
penalty on conspicuous consumption and wasteful spending.

If you want a penalty on conspicuous consumption then simply levy taxes on
items which count as conspicuous consumption - yachts, private jets, houses >
$2 million USD, super cars, etc.

It would probably not be a huge list and it wouldn't be a complicated rule.
You might miss one or two exceptions, but that's okay.

It would be a LOT simpler than going the other way - taxing everything
consumed in the economy and then making exceptions for conspicuous
consumption.

~~~
gyardley
We've done all this before - in the early 1990s, George HW Bush passed a 10%
luxury tax on yachts, private planes, furs and a few other high-value items.
Maybe expensive cars, I don't remember perfectly.

The government figured these measures would bring in X dollars in new revenue.
It actually brought in much less, about 0.5X, as the purchasers of luxury
goods changed their behavior. After the cost of unemployment benefits to
people - thousands in the boat-building industry, among others, lost their
jobs - the luxury tax ended up being a net negative for the government. It was
repealed a couple of years later.

The economy's too complex for us to experiment on without unintended and
unanticipated side effects. That doesn't mean we should never experiment with
it - as long as we do it cautiously - but we should at least learn some
lessons from the experiments we've already conducted.

~~~
crdoconnor
A) The sales pitch to get rid of the tax was super slick. No denying that. The
substance was thin, though.

B) Like I said below: the function of a tax is not to bring in revenue, and
counting it a success or not because it brought in above "X" amount of revenue
is staggeringly dumb. Taxes are there to disincentivize undesirable behavior
and clamp down on inflation, not raise funds. Governments sovereign in their
own currency are not revenue constrained.

C) The effect removing that tax had on jobs was almost negligible. Look at
overall unemployment during that time. Didn't budge.

>The economy's too complex for us

Hm. Apologetics for the ultra-wealthy...

------
spenrose
Piketty cites 1914->1945 over and over in his book as the one period when r <
g, and discusses the implications for his theory over dozens of pages. Yet
Gates somehow seems to think WWI and the Great Depression are a gotcha! he has
come up with.

Gates: "Far more people—including many rentiers who invested their family
wealth in the auto industry—saw their investments go bust in the period from
1910 to 1940, when the American auto industry shrank from 224 manufacturers
down to 21. So instead of a transfer of wealth toward rentiers and other
passive investors, you often get the opposite."

------
PythonicAlpha
Must be some American specialty. At the end, Bill Gates sees Philanthropy as
(part of a) solution. This must have something to do with the US-American
history and background? I heard that opinion so often and we are in deed in an
era of big philanthropists (like Bill himself). But I (no American, and maybe
missing some genetics for it) can not see any solution in it. The biggest
philanthropists today are in the US, but also the US is one of the countries,
where inequality rises fastest. So, by this viewing alone, there must rise
some doubts about it.

Also, you could compare philanthropy with the "foreign aid" that western
countries give to poorer ones for decades now. Did it help? In many cases, it
made things worse, because the money did not help the people to help
themselves, but made them addicted to the aid.

The point is also that philanthropy -- as it might silence the own conscience
-- is often the overflow of the overflow. We give, because we have more than
we need and than we give what we need least. But what people really need, is
not somebody that throws pennies in your hat, so you can buy some old bread --
but what they really need, are equal chances -- to be able to visit the same
universities, to have the same jobs and to earn the same money as other people
with the same talents.

You might argue: But Bill also fought his way from "rags to riches" \-- no,
that is not right. Bill already was born in a well being family and visiting
visited Harvard College. With such a background, it is much easier to come
from rich to riches, as if you come from Uganda slums (or even Harlem).

~~~
JoeAltmaier
Philanthropy is many things. It includes emergency aid, which by no means
makes people addicted to aid. It includes schools and scholarships which are
doing what you ask - leveling the opportunities.

Where philanthropy fails is when its not matched to cultures. Building schools
for girls in countries that won't tolerate that - they get closed soon after
you leave. Or educating local doctors, who immediately leave the country for a
better job in America.

But what can philanthropists do? You can't make people change to suit your
goals.

~~~
PythonicAlpha
I don't say, that philanthropy is bad.

What I mean: Philanthropy does not help, when the reasons of poverty are not
removed. Biggest philanthropy will not help, when it is the result of extreme
redistribution of money. The philanthropy of the monks in the middle ages did
not help, because the monks where part of the system of inequality, where few
owned all and the rest had to live on .... sometimes philanthropy.

------
bigdubs
I haven't read the book, and not sure Gates reaction covers this.

It's fine to have a progressive tax. That progressive tax becomes useless if
you gut entitlement spending and instead spend on programs or services where
the money ends up back in major corporations hands (defense spending, private
contracting etc.)

In order for a progressive tax to be corrective it has to put the money to
work for people in the lower end of the tax curve.

------
lsiebert
Okay, I want to talk a little bit about how wealthy people would benefit in a
more egalitarian society. But if we assume they are objectivist, there are
some issues.

It's difficult to do so, because it's hard to say what can benefit a person
who is wealthy already.

I mean I can point to data that suggests that people who earn better wages,
get headstart, have libraries in their community, get a college education, etc
are less likely to commit crimes, but your wealth probably means that you can
afford good security.

I can say that in a more egalitarian society, vaccinations would be free, and
thus you are your children are less likely to get diseases, but you have good
health care, and so this isn't a huge issue.

So I guess the best way is to point out that in a more egalitarian society
with free or low cost education and funding for research, general progress in
the sciences would happen faster. You get better medicine, better technology,
can potentially live longer. Also such an economy will grow more quickly, and
while if there were more stringent taxes you may not gain as much of the pie
as you could, a bigger pie would cancel that out.

------
zachrose
"Imagine three types of wealthy people. One guy is putting his capital into
building his business. Then there’s a woman who’s giving most of her wealth to
charity. A third person is mostly consuming, spending a lot of money on things
like a yacht and plane. While it’s true that the wealth of all three people is
contributing to inequality, I would argue that the first two are delivering
more value to society than the third."

Of course buying yourself things you don't need delivers less value to society
than commerce or philanthropy. Of course. Absolutely.

But maybe...

Maybe buying yourself things gives you the chance to have unique experiences.
Maybe hitting golf balls into the ocean from the deck of your megayacht gives
you the relaxing moment you need to figure out how to boost profits by 300%.
Maybe doing a ton of blow and driving a Jaguar give you the necessary
experiences to write awesome rock tunes that inspire millions. Maybe if
Galileo Galilei hadn't bought himself a lump of clear glass in 1609 we
wouldn't know about space.

------
ajcarpy2005
From the comments on the site: >>>A poor person, will spend all his income on
consumption of food, clothes, water and all the basic things that he can pay.

>>>A rich person, will only spend a small fraction of it's income, so in the
end, proportionally, poor people end paying more taxes then rich people, and
that's actually something that's hurting poor people here.

^^^This seems to actually be a sensible argument for there being a problem
with a simple flat consumption tax.

A solution might be to have a progressive tax on consumption which becomes
more meaningful when levels of spending on consumption reaches a level beyond
that of the lower 33% of the populace or something like this. The problem
would be figuring out how to apply this tax since it couldn't be done through
the sales tax as it currently exists.

~~~
humanrebar
No, the solution is to separate the concerns, keep flat taxes (because they
are more transparent and therefore more fair) and introduce direct subsidies
to the working class (again, transparent and fair... I favor a guaranteed
income or an earned income tax credit) so average citizens can buy necessities
and even get ahead.

It's a fair point that a flat tax, in a vacuum, is harder on the poor, but
we're not in a vacuum.

~~~
ajcarpy2005
Yeah I agree with you completely that a guaranteed income would probably be
the best way to take society to the next level in terms of economic stability
and as a way to care for the best resource we have which is human capital.

There are plenty of dynamics which would still be at play that would be
capable of incentivizing the appropriate people to work in response to needed
labor. (eg. landlord responsibilities to apartment tenants)

------
ash
Philip Greenspun has written a whole series of posts reviewing this book:
[http://blogs.law.harvard.edu/philg/2014/06/17/book-review-
pi...](http://blogs.law.harvard.edu/philg/2014/06/17/book-review-pikettys-
capital/)

------
IanDrake
"Imagine three types of wealthy people. One guy is putting his capital into
building his business. Then there’s a woman who’s giving most of her wealth to
charity. A third person is mostly consuming, spending a lot of money on things
like a yacht and plane. While it’s true that the wealth of all three people is
contributing to inequality, I would argue that the first two are delivering
more value to society than the third."

The problem with this line of thinking is that yachts and planes don't grow on
trees. They're built and maintained by people who have jobs (typically well
paid jobs) because someone with wealth is paying for it.

So, to me at least, there is only one type of wealthy person who doesn't add
value and that is the hoarder.

------
quantumf
So Gates wants heavy taxes on consumers, but no taxes on entrepreneurs and
philanthropists. Interesting. I wonder which of these categories applies to
Gates?

------
georgeecollins
I like his comparison of how the emergence of the auto industry was a way new
wealth was created by entrepreneurs and old wealth was destroyed through bad
investments. He says he sees a similarity in tech booms. There is a real value
in the frothyness of tech bubbles. Capital can't accumulate forever. People
need to be convinced to make bad investments. In that sense unsuccessful VCs
serve a useful purpose.

------
stuaxo
He mentions three kinds of wealthy person and what they spend most of their
money on.

Surely the 4th is the most important - the one who is NOT spending most of
their money.

~~~
JoeAltmaier
I'm always confused about the question of 'what wealthy people do with their
money'. Unless its buried in a jar in the back yard, its invested in
something, just like yours and mine, in a bank or CD or stocks. Its ALL
'spent'. What am I missing?

------
clairity
i think what gates is ultimately saying is that "good" wealth (gates's main
concern, since he's rather invested in the topic) has a potentially higher
multiplier effect than bad (wealth solely used for consumption).

so in his example, investors and philanthropists have more volatility around
the potential effects of their wealth, so the multiplier can be >1, <1, or =1,
but the _key_ is that it can be >1, which means that it can be value
generating. consumers' multipliers are necessarily <= 1.

as an aside, i'm also intrigued by the idea of economic velocity as an
indicator of economic health (as opposed to the gini coefficient, which is a
rather static measure) that's tangentially related to the idea of economic
inequality. of course, for capital to have a stabilizing effect on the
economy, it needs to have a high dispersion coefficient, but that's another
discussion.

------
foobarqux
I can't understand how someone so intelligent can misread Piketty so badly.
For example, Gates focuses on individuals in some of his critiques but Piketty
is talking about classes of wealth, the constituents of which may change but,
Piketty argues, whose characteristics do not.

------
rumcajz
In what way would consumption tax address capital accumulation?

Also, using 1910-1940 period as an example to show that Piketty is wrong
doesn't make much sense given that Piketty's data show that inequality have
actually lowered in that particular period.

~~~
tim333
I guess you'd have to combine the consumption tax with a large estate tax or
similar to address capital accumulation.

~~~
rumcajz
Capital tax is what Piketty proposes and what Gates argues with.

------
pappyo
For a more in depth review of Piketty's book, I posted a review I found a
while back.

[https://news.ycombinator.com/item?id=7712623](https://news.ycombinator.com/item?id=7712623)

------
mkempe
Gates, and Piketty, would benefit from considering the insights of the
Austrian school of economics, instead of accepting then regurgitating Marx &
Engels with a veneer of civilized discourse. Neither seems to have read a
single page of Ludwig von Mises or Eugen von Böhm-Bawerk. Piketty certainly
quotes Marx ad nauseam.

George Reisman has offered a thorough critique [1] of Piketty's arguments --
arguing across a range of topics, from David Ricardo's insights in the role
and formation of capital to the meaning and _value_ of _inequality_ in both
income and wealth.

[1] [http://georgereismansblog.blogspot.com/2014/07/pikettys-
capi...](http://georgereismansblog.blogspot.com/2014/07/pikettys-capital-
wrong_28.html)

~~~
chippidysan
The majority of these comments are "tax the rich!" with no regard to current
government spending trends. Oh and the obligatory, "BUT WHO WILL BUILD THE
ROADS!?"

------
jokoon
> wealth decays

I don't understand this. I mean you just get poor much quicker when you have
less wealth. I understand that you don't stay rich, but it secures your kid's
futures.

------
cyphunk

        And when does inequality start doing more harm than good?
    

First up, please explain when inequality does any good

------
ommunist
That's easy! Inequality matters until some people are more equal than the
others.

------
pastProlog
At some point in the Matrix movies, Neo learns he is not the first Neo. If you
read Hegel, you learn that capitalism is not the first economic system. It was
preceded by feudalism, which was preceded by the slave latifundia of Rome and
Babylon which was preceded by the hunter-gatherer bands that the world was
solely covered with 10,000 years ago. Hegel saw enlightened, capitalist
Prussia as the epitome of human civilization, but like those biologists who
note that even humans are still evolving, Marx and Engels noted that the
fourth economic system the world had thrown up might not be the last one, and
that crises (like the one we had in 2008) were signs of the cancer it was
dying from.

The interview question on stages nowadays seems to be what does someone
believe in that is not commonly believed, and I supposed the out idea now is
the people who control production, the people who own capital are not
interested in economy growing as fast as it sustainably can. They want a
slower rate of growth in order to maintain more control of the system. This
idea not only goes against current economic thinking, and investor's chasing
of maximum returns, it's an anti-Marxist idea as well. It seems to be
happening though. It's why people like Paul Allen and Nathan Myhrvold pour
money into patent companies. It's why the joint chiefs of staff beg the
Congress to cut funding for old Cold War tank factories every time the
military budget comes up, but the billions for useless tanks, or the hundreds
of billions for the designed by committee F-35 boondoggle etc.

As Marx notes, something like a "war on poverty" is a joke, since people are
not only purposefully kept poor but purposefully thrown into poverty, like
during the enclosure of the commons in Europe. A surplus army of labor is a
major tool to keep workers from keeping more of the wealth they create.

Sooner or later, the good ship USS Wall Street will inevitably run aground,
and the economy will grind to a halt in a way that will make modern Greece or
1930s USA look good. Then it will just be a question of what working class
people and professionals do in their new situation. It's not really the
working class people, who are familiar enough with reality, who one has to
wonder about, it's more the US professional classes, who are more highly
indoctrinated than probably any group of people in the world. I hold my mouth
in awe as I hear US professionals pontificating about things going on half-way
around the world in which they know absolutely nothing about. NPR is
ultimately a heavier propaganda outlet than Der Stürmer, Правда or Fox News.

------
auggierose
r > g is not an equation, it's an inequality

------
peter303
ironical from a multiple times convicted monopolist

~~~
naland
Convicted, oh no —it's worse than that. Now he is a hero figure one national
pride. For those who express doubts to national pride, HN underside them to
this thread.

------
michaelochurch
The "r > g" debate is interesting. I think the problem is more subtle than
that.

One of the problems is that people get different r's. Just look at VC firms. A
pension fund that invests in venture capital funds gets mediocre returns:
nothing much better than they'd get from an index fund, and often less. VC
partners collect 2-and-20 and get to allocate favors (because it can benefit
their careers to make decisions that are suboptimal for the portfolio, and
they often do). The "real r" in that engine might be higher (if VCs focused on
technical excellence rather than their own careers, I think we'd see quite a
respectable r) but the delivered r is mediocre. That's just one example.

To go further, and I don't know how to solve this: if you have good
relationships with various counterparties (especially, banks) you can get a
low-risk r > 15% in arbitrage. Contrary to stereotype, arbitrage is neither
risky (it's low in risk, and most arbitrage blow-ups occur because some
hotshot trader got bored and started taking unauthorized positions) nor is it
socially harmful (it provides liquidity to markets, which is a good thing). It
is, however, not open to most people.

There are many things that cause "wealth decay" or normalization. I'll name
four. Hyperinflation and violent revolution are the most disruptive (sorry San
Francisco, but disruption is a bad thing). Taxation is the smoothest but can
be ineffective (loopholes). Wealth management is yet a fourth: at some point,
a large fortune has management overhead and, as its owners become less
interested in day-to-day running of the money, much of that excess "r" goes to
the agents than to them.

As for "r >? g", I'd prefer two things. First: I'd like that everyone have
access to the _same_ r, but I don't know how to achieve that. Second, g isn't
constant. World economic growth is 4.5% per year. I believe that it could be
8% or 10% with some heavy R&D investment, and with better (and, quite frankly,
smarter) people running the world. The all-time record high for world GDP
growth is 5.7% in the 1960s, but we have so much more technology, and the
shape of economic growth _is_ (while I don't believe in a "singularity" of the
theatrical sense) faster-than-exponential.

Even now, we have a world in which programmers (not 10x or 2.0+ engineers, but
just regular programmers) become 10-12% more productive each year due to tool
improvements. Motivated, ambitious programmers can do 30% per year. The bad
news is that it's almost impossible for a programmer to grow her income at any
rate near that. In fact, as she becomes more experienced, she's also more
specialized and dependent on her employers (or clients) for great projects.
They'll pay her pennies on the dollar relative to what she's worth, that
charge being for the "favor" of allocating the good work. The reason why 10x
engineers only make 1.3-1.5x salaries (until they become consultants, at which
point it's more like 2-3x) is that their employers are very good at playing
the "we can give you a raise, _or_ we can give you career-positive work" game.

The software economy is at the fore of what's happening to other industries,
but people in most sectors are a good deal poorer. We're comfortable upper-
working class people complaining about our slide into the upper-middle-working
class, but people outside of tech don't have anything to lose.

What we actually need to focus on is g, and r_labor. We want a high r_capital
and an even higher r_labor. Sadly, badly managed economic growth tends to make
r_labor negative. That happened in the American 1920s with agricultural
commodities (contributing to spiral rural poverty, which led to the Great
Depression) and it's happening to _all human labor_ in the 2010s.

------
naland
Gates on notes in vinyl …oh boy Girl you know it's true. And I blame myself
can't read this.

