What’s Six Orders of Magnitude Between Friends
Photo by chriscorneschi via Flickr
Good Grief:
how did this end up on tv? pic.twitter.com/xUYIOChhKv
— andrew kaczynski🤔 (@KFILE) March 6, 2020
In case you can’t watch, someone tweeted last night that for the $500 million Mike Bloomberg spent on his presidential campaign, he could have given every person in America one million dollars. This was so obviously, hilariously wrong I had to assume it was a joke. Dividing that money among the American people would have given everyone $1.53. And while I would have preferred my family of four get six bucks instead of the Bloomberg campaign, that’s…not a million.1 It’s simply a nonsensical point.
But then Brian Williams and Mara Gay picked up this point and re-iterated it. Now think about how many people were involved to find the tweet, flag it as interesting, make a graphic, display it, and then talk about it. And not one said, “Hey…uh…think your math’s a little off there, Mr. Peabody.”
Charles Cooke goes into the cognitive bias that made this possible. A fortune like Mike Bloomberg’s is difficult to fathom and we have an entire party telling Americans they can fund a massive welfare state just by taxing “the rich” (as opposed to Republicans, who think we can fund a massive welfare state by taxing no one). So maybe it isn’t such a surprise that this number sounded reasonable to Williams and Gay.
But I also think this reflects the danger of journalists using Twitter for news. I once saw a very good analogy for what Twitter is: it’s like a nonstop cocktail party with millions of guests who come in and out. Some guests are extremely popular and have thousands or millions who hang on their every word. Most have their own little corners with people they know. And like a real cocktail party, you can meet smart people who will inform you, bad people who will be cruel to you and dumb people who will mislead you.
Twitter can be very good with breaking news, but it can also be very bad. It can give you a real-time picture of what’s going on in an election. Or it can give you lies about a bunch of high school kids’ interaction with a Native-American protester. The burgeoning Coronavirus issue is a perfect illustration. There are smart knowledgeable people passing on insight and data. But there are also dumb assholes trying to score cheap political points.
It can be overwhelming. The only way to deal with it is to filter and curate your experience. I follow several hundred people. But I have a list of about 40 that constitute the feed I usually use. I also use filters to mute topics I’m not interested in. I exercise caution with breaking news and skepticism with fantastic claims to the point where I will sometimes refuse comment on a breaking story for the first 24 hours.
The media’s problem with social media is that it doesn’t filter — sometimes because they have no choice in a breaking story, sometimes on purpose to generate outrage or talking points. The classic example is when they try to convince us that “people are FURIOUS about Captain Marvel” and cite a tweet with two likes from a user with 12 followers. But this is the more subtle version: when they troll for something to talk about on the 24-hour news cycle and don’t take time to think about what they’re broadcasting. Especially when it confirms their priors.
We often say that Twitter is not real life. If it were up to Twitter, Corbyn would be Prime Minister, Clinton would be President and Greta Thunberg would be Secretary-General of the United Nations. But Twitter can give you glimpses into real life. I’ve learned a lot from people on Twitter on everything from military history to epidemiology to children’s rights to corporate law to criminal justice. But it’s a useful tool for me because I’m skeptical. I filter. I check out claims. I try to figure out which accounts are full of it and which aren’t and consider when experts contradict each other.
I’m far from perfect. I’ve often said or retweeted things I regretted. I’ve frequently sounded like an idiot. But at least I’ve never gone on TV and repeated a calculation that was by off literally a factor of a million. And I’m just some dude. Twitter is a distraction for me, not a critical part of my job
At some point, the media is going to have to learn how to properly use social media: with skepticism, with filters and with knowledge of who exactly you are citing. At some point..we all are.
- Well, to be fair, watching Elizabeth Warren dismantle Bloomberg was almost worth six bucks. When reports came out that Bloomberg was ending his campaign, our friend Drew Savicki quipped that Warren had already done that. I can’t believe it’s 2020 and we are still crediting a man for a woman’s hard work.
Great piece!! Thank you so much for writing it!Report
Clearly you and I are reading the same things.Report
Every once in a while—not nearly rarely enough—I come across something like this, where a claim is so obviously wrong that I don’t even have to check it. It’s off by an order of magnitude or more. Or I see a claim that someone has said or done something that is so fundamentally out of character that I can be virtually certain that when I look into the details, I will find that the claim is mischaracterization of the facts.
Another example is this doozy from Ocasio-Cortez, who claimed that cutting down on military fraud and waste could pay for M4A. I also saw a claim today (from some no-name on social media, fortunately) that Bloomberg spending $500 million on his campaign proved that the top 1% could fund all of Sanders’ proposed spending programs and barely notice the cost.
The problem here is not a failure to do due diligence. Obviously due diligence is important, but with errors this obvious, reporters and members of Congress shouldn’t have to do due diligence. They should have mental models of these issues calibrated well enough that nonsense like this just jumps out at them as obviously wrong. Falling for stuff like this is diagnostic of a worldview unmoored from reality, and an inability to reason about these topics in any coherent manner.
This is why I cringe whenever I hear the phrase “elite media.” There’s nothing elite about these people.Report
Jesse Kelly tweeted this out this morning and it spoke to my soul:
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It turns out that learning to code may not, in fact, be the best backup plan for journalists.Report
For reference, total household wealth in the United States is on the order of $100 trillion. The math here gets tricky, because “trillion” “million” are different words, but that comes out to about $300,000 per person. If you divided all the wealth held by American households evenly, you still couldn’t give everyone a million dollars.Report
I did like the post from Mike Bird:
https://twitter.com/Birdyword/status/1235909520037040128
He’s got a point that people just have this notion of The Rich as having infinite money, pools of gold coins that they swim around in like Scrooge McDuck, and they assume that whatever number they say about rich people will be right because They’re Rich.Report
“The Rich” are pretty much like that though. We’re talking the .05% and up. But that is the life of the mega rich. They have enough money that their grandkids could never work a day and spend their lives as dissipated opium addicts and still die rich. People think that level of wealth is lower than it is or imply what should be done from that is a separate issue.Report
The point is that it’s a lot for one person to have, but it’s not actually that much money in aggregate compared to government spending. The government could confiscate all the wealth from all the billionaires in the US, and it would fund the federal government for about eight months. It’s not an inexhaustible source of wealth that can be tapped to pay for anything we might ever want.Report
That is different point and one i agree with. I’m not down with the “just tax the rich and everything will be ducky” thing some on the left have. I’m also fine with higher taxes on the rich, even though they won’t fix everything, and admit i’m not that concerned a 2 billionaire might be taxed to the point of only being a 1.5 billionaire. And the lives of the really wealthy are completely divorced from the lives of 99+ % of us , to a scrooge mcduck level, and they have a disproportionate amount of power which is not good.Report
There are 607 Billionaires in the US, there are 327 million people.
Divide one by the other and we get 0.000186%
This kind of money is exceptionally rare.Report
People with only a few tens or hundreds of millions are pretty darn rich.Report
But not to a “McDuck” level.
And more to the point, what “problem” are we worried about here? For all the talk about worthless grandchildren, almost all of these Billionaires founded companies and their net worth reflects the level of “goodness” they’ve done for the economy.
A large part of that is worthless grandchildren are so good at burning down fiscal empires.
McDuck is a fantasy. He could have his entire fortune taken by the gov and we’d know how to spend it better than he does. The reality is their fortunes are companies we WANT to exist.Report
The thread started with talking about the rich being different and having giant pools of money. I stand by that. If you are only a 100 millionaire you are in a different reality then 99+% of us. Can we tax rich people to solve all our issues; no. We’re not taking all the rich folks money and end their companies. If the highest bracket went up a bit the rich will still be rich and have their, occasionally, good companies.
I think it’s a problem the rich have to much influence on policy, but taxing itself isn’t going to change that. It will take more then taxes to fix that.Report
There is a world of difference between “a bit more taxes” and “turning 2B into 1.5B”.
Further more than a few Dems want to get rid of Billionaires just because it’s “unfair” for someone to have that kind of money. It makes them different. It gives them “a disproportionate amount of power” as you put it.Report
I skipped something important about this.
When we are talking about Billionaires wealth, we’re normally talking about measuring the economic activity of a specific company.
Great care needs to be taken so that the 500 Million dollars of damage you wouldn’t mind doing to one person isn’t also done, on steroids, to the economy as a whole.
For example we pass a law and destroy Amazon. Bezos loses 115B. The economy loses almost a Trillion dollars.
Use a time travel machine to impose a 6% wealth tax on Bill Gates to punish his success with Microsoft back in the 80’s and the economy as a whole loses 3 Trillion dollars just from Amazon, Alphabet, & Apple.
That 3 Trillion is a lower bound, not a realistic estimate of total damage which would be higher, maybe a LOT higher.Report
How does one go about “destroying” Amazon?
After a wealth tax, would people stop buying stuff? Would merchants stop wanting to sell stuff?
Isn’t one the strongest arguments for capitalism is its resilience, and how markets arise even in the face of the fiercest attempts to suppress them?Report
Of course not. What happens is Entrepreneurs don’t set up companies they think of that sort of promise, or they flee the country after their company grows past a certain point of time.
This is crippling investment and profit.
We should expect that if the gov outlaws profit/investment, there will be serious side effects and the bulk of it won’t be on the evil rich.Report
Use a time travel machine to impose a 6% wealth tax on Bill Gates to punish his success with Microsoft back in the 80’s and the economy as a whole loses 3 Trillion dollars just from Amazon, Alphabet, & Apple.
This counterfactual makes not quite but *almost* zero sense. Your premise is that Bezos and Steve Jobs and the rest of the boys wouldn’t have been motivated to create their companies and products if taxes were slightly higher. Which is not quite but *almost* absurd.Report
Trying to spin a 6% wealth tax into “taxes are slightly higher” is insane.
Over a 20 year period of time that’s taking 70% of Bezos equity.
Companies like Bezos’ would still be created, they just wouldn’t be created here.
Edit: And that’s just one problem with this tax. Trump would need to what… sell 6 golf courses every year for the priviliage of being an American? Trump has been doing this for 50 years, either at some point he flees the country or the gov takes 96% of his money.Report
Companies like Bezos’ would still be created, they just wouldn’t be created here.
That’s happening anyway, isn’t it? What’s the technical term for acquisitions designed to relocate corporate HQs outside the US? Inversions or something like that? Already happening.
Personally, I don’t think your worry is that Microsoft’s corporate charter wouldn’t be in Seattle (or wherever it is) though. It’s the taxes man!Report
Yes, and it’s a bad thing and a serious indication that we should get our house in order. Similarly us moving down on the index of economic freedom is a bad thing.
However this is like saying that because the house has a broken window, it won’t make things worse if we burn it down.Report
The idea that higher taxes cause people to not invest or create is just silly.
If your income tax were to go up, would you quit your job?
Where do we see this phenomenon happening?
Tax rates, both nominal and effective, vary around the world, yet if this theory were true, we would see investment capital consistently flowing towards low tax areas.
Yet this isn’t happening., is it?
Here, let a wild eyed socialist explain how business works:
Investment capital flows towards after-tax return on investment, which is the result of many many factors. Tax rates are only one factor, and a minor one at that.Report
we would see investment capital consistently flowing towards low tax areas.
Check this out Chip: https://www.cato.org/publications/tax-budget-bulletin/taxing-wealth-capital-incomeReport
That doesn’t actually address the issue though.
What European nations lack in a wealth tax, they make up for with other taxes.
And tax evasion, like moving one’s address to a PO box in the Cayman Islands, shows the silliness of the argument.
No actual companies are ever moving to the Caymans; The company still resides in Michigan or California or New York, they just use a legal fiction to operate in one place but pretend to operate in another.
It is possible that with a stroke of the pen, the tax advantage to locating in the Caymans could disappear, and companies would simply tell the truth of where they reside and pay taxes accordingly.
Because the whole theory of taxes driving away business is one of those things that socialists and libertarians do, where they take the complexities of the world and compress them down into an absurdly simplistic model where there is a single driving variable, in this case taxes.
Tech companies locate in California for a host of reasons like access to talent pools and education centers; Financial firms locate in New York for similar reasons.
In terms of location, taxes accounts for a very small variable.Report
Good lord Chip. I cited a very narrow paper, specifically addressing the impact and politics of wealth taxes, and you respond by saying it doesn’t address the issue.
The fourth paragraph of the paper:
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Because the whole theory of taxes driving away business is one of those things that socialists and libertarians do, where they take the complexities of the world and compress them down into an absurdly simplistic model where there is a single driving variable, in this case taxes.
No, I think the single variable is profit (or maybe more precisely, profitability). Firms will relocate to low wage areas, less regulated areas, low tax areas for the same reason, seems to me.Report
Yes, different business models require different variables.
For some businesses like industrial warehousing, cheap land is a primary driving factor; For others, proximity to transportation is; For still others, employee talent pool is a high consideration.
Taxes are like rents or utility costs or fuel costs; Just one more variable that makes up the total picture of profitability.
Any one of these variables will drive away business if it becomes high enough;
But its equally true that each of them has an inflection point where it peaks.
A wealth tax, personal income tax, corporate income tax, property tax; these all have inflection points where the maximum revenue is derived.
Rather than trafficking in tired bromides, its better to talk about where the inflection point might be and whether we are on the left or right side of it.Report
Rather than trafficking in tired bromides, its better to talk about where the inflection point might be and whether we are on the left or right side of it.
Amazing. It’s like the Cato paper I linked to didn’t even happen….Report
The Cato paper would indicate that the various European nations were on the wrong side of the inflection point.
I mean, it isn’t trying to make the case that any tax, of any amount, applied to any item, will result in a loss of tax revenue, right?
There must exist an inflection point where a tax can exist, and yet yield a positive revenue.Report
Stillwater’s link suggests the inflection point for this one is zero. It’s that toxic an idea.
It’s also noteworthy that since this is an exponential growth/decay issue the 6% suggested, while 4 to 12 times what France’s, will be a lot worse than just 4-12. We should assume the level of toxicity doubles with every half point or so.
We’re into hyperinflation or the Wrath of God territory. This proposal is to economics what the holocaust is to ethics.Report
That’s absurd, that anything greater than zero will cause a drop in revenue.
That literally means that if we charge Jeff Bezos a penny in tax, he will shut down his operations.
Once again, you’re ignoring the empirical data that investment flows towards return.
For an investor, it doesn’t matter if they pay a little or a lot in rent, a little or a lot in taxes or insurance or labor or whatever, if the investment return is commensurate with risk they will do it.Report
The [French] wealth tax might have generated social solidarity, but as a practical matter it was a disappointment. The revenue it raised was rather paltry; only a few billion euros at its peak, or about 1% of France’s total revenue from all taxes. At least 10,000 wealthy people left the country to avoid paying the tax; most moved to neighboring Belgium, which has a large French-speaking population. When these individuals left, France lost not only their wealth tax revenue but their income taxes and other taxes as well. French economist Eric Pichet estimates that this ended up costing the French government almost twice as much revenue as the total yielded by the wealth tax. https://www.bloomberg.com/opinion/articles/2019-11-14/france-s-wealth-tax-should-be-a-warning-for-warren-and-sanders
France’s low end wealth tax was 0.5%. They have strong cultural support for this sort of nonsense. They found out that anything greater than zero caused a drop in revenue. There are other problems with it, affects on growth and being a nightmare to administer, but this is just raw numbers.Report
No, the tax was greater than 0.5%. And it applied to a far smaller amount of wealth than anything Warren or Sanders is proposing.
“The top rate was between 1.5% and 1.8%, with the total tax rate on fortunes larger than 13 million euros ($14.3 million) hovering at about 1.4%”.
What would have been the effect of a slightly lower rate, on a higher fortune? We don’t know.
What if moving away to avoid the tax meant an inability to work within the borders? We don’t know that either.
Again, I agree that there is a point where the rate of taxation reduces revenue. But it is greater than zero.
Oddly enough, this was the point of the Laffer Curve, that too little taxation reduces revenue. He stipulated that there was an inflection point where revenue peaks.
All forms of taxation have an inflection point. I’m saying that those points are greater than zero.Report
It is a very weak argument to claim that because we haven’t seen it fail in every possible way it can fail, maybe it can work somewhere. We’ve seen this fail ugly where it’s been tried, “this time it will be different” is not sound economic policy.
To reach this conclusion you need to ignore the empirical data.
The cost to administer this program will be EXTREMELY high. We’re diving head first into the “what is wealth and how to value it” rabbit hole. How much is one of Trump’s properties worth in situation x, y, z, when it hasn’t been on the market in 50 years?
The costs to do this are so high that England’s data driven conclusion was the expense to administer it would be greater than the taxes gained.
We should expect that a Billionaire has more resources to throw at “fixing” this than a millionaire. They also have far more at stake.
How many Billions of dollars do we need to threaten to take from Bezos before it’s worth his while to move to one of his dozens of overseas sub-headquarters 7 months of the year?
And notice that’s ignoring the impact on growth. We’re blithly trying to assume future Billionaires won’t change their actions during the growth cycle of their wealth creation.
My expectation is the rate maximizing level for this one is zero. The real world empirical data suggests that’s true.Report
You know that valuation of assets is a thing, right?
Like, calculating how much land and property and assets are worth is something people do constantly.
Lets come at this a different way.
Lets say we want to run government like a business, and have it charge for the services it provides.
So the question then becomes, what is the maximum price we can charge for the service, and how to allocate those charges among the recipients?
Part of the calculation is that businesses are NOT infinitely relocatable;
There is a tremendous advantage to financial firms being in Manhattan, New York instead of Manhattan, Kansas. Or film studios being located in Hollywood California instead of Hollywood Florida.
So through a process of calculation and trial and error we can determine what things to tax and at what rates so as to maximize revenue.Report
You seriously should read Stillwater’s Cato link in it’s totality. We’ve had two dozen-ish real world attempts at this in “similar” economies and the results were uniformly terrible.
Extremely expensive, requires armies of accountants to run, easy to avoid, doesn’t raise much income, creates capital flight, and so forth.
You really should explain at this point why, even though all of these countries have found it a bad tax, it will be different this time.
Armies of people whose jobs are to implement/run tax plans at a national level fully understand concepts like “valuation of assets is a thing”, it didn’t help.Report
One of the problems the tax creates with “valuation of assets” is that it’s very existence means those assets aren’t worth much of anything to anybody.
Fred: “Here, buy this expensive property I need to unload!”
Bob: “Why do you need to unload it?”
Fred: “Because the wealth tax means it will be worth less and less every year, so if I hold on to it I’ll end up broke.”
Bob: “So if I buy this property, won’t I go broke too?”
Fred: “Yeah, but that’s you, not me.”
Bob: “No sale.”
And that will apply to just about every asset subject to the tax. You could hit them on the prior value of the asset and generate some revenue for the first year or so, but since the real estate market is tanking, the government will be losing tons of revenue everywhere else as people use their huge market losses to offset their other income. The net revenue effect ends up negative, time after time.Report
“Taxes are like rents or utility costs or fuel costs; Just one more variable that makes up the total picture of profitability. Any one of these variables will drive away business if it becomes high enough; But its equally true that each of them has an inflection point where it peaks. A wealth tax, personal income tax, corporate income tax, property tax; these all have inflection points where the maximum revenue is derived.”
You may be pleased to know that there’s an economics term and existing body of research for that: the Laffer Curve https://www.investopedia.com/terms/l/laffercurve.asp
You may be surprised to know that’s also the underlying rationale for Republican Tax Cuts. Where that point is and where we are in relation to it is already discussed, in depth and with extensive research, when determining the proposed reduced tax levels. We’ve been doing this for a long time, the MSM just deceptively calls it “Tax cuts for the rich” because that’s who’s already paying the vast majority of our taxes.
And for the record, the inflection point on wealth taxes truly is 0. The effort to reliably calculate and collect on the tax historically costs more than the tax itself generates at low levels and at high levels it invariably causes flight from the jurisdiction. I’ve been unable to find any country that tried it where it even succeeded in paying for itself (after capital flight damages to the economy). If you find one, I’m interested.Report
It was Bruce Bartlett, one of Reagan’s economists who asked, “Where is the inflection point of the Laffer Curve?”
(You didn’t think I came up with that term on my own did you?)
We actually have wealth taxes right now, and always have.
A tax on any sort of good is a tax on wealth; Property taxes, capital gains taxes, income taxes; These are all just different ways of taxing wealth.
And of course, they all have inflection points far above zero.Report
“You didn’t think I came up with that term on my own did you?”
Inflection point? It seems more likely a coincidence than spending several paragraphs discussing the Laffer Curve without calling it by it’s name.
“A tax on any sort of good is a tax on wealth; Property taxes, capital gains taxes, income taxes; These are all just different ways of taxing wealth.”
Fallacy of Equivocation. That is not the same meaning of “wealth” used when referring to “Wealth Taxes”. A “percentage of net worth” is not the same thing theoretically or practically as “a percentage added on a particular kind of transaction”.
“And of course, they all have inflection points far above zero.”
I’m going to agree with the Cato paper on this one. What’s your source supporting that claim?Report
You want a source for the claim that property taxes have an inflection point above zero?
Wouldn’t that be the simple fact that we assess and tax property every single day in this country?
I’m happy to grant your point that Warren’s and Bernie’s specific wealth tax may prove unworkable; I don’t know enough about their specifics to defend them on anything other than general principles.Report
“Wouldn’t that be the simple fact that we assess and tax property every single day in this country?”
No, that we do a thing does not demonstrate that the impact of it isn’t net negative. I daresay both of us could call out some pet peeve government programs that do more harm than good, even within the tax code.
I want any evidence, historical or theoretical, that a “Wealth tax” on net worth (not income, land, cars, stocks, or any other specific thing or transaction) has an inflection point above zero. I’ll accept an attempt on general principle if that’s all you have, but I’m not going to give it the same weight as a white paper.Report
It depends on what you mean by “unworkable”. Stillwater’s link talks about how to tax “the rich” efficiently without causing economic damage. If that’s the point then more power to you.
However a 6% wealth tax is not an effort to raise revenue efficiently. It’s an attempt at social engineering, at destroying the rich to get rid of inequality, and it was sold as such. The plan is certainly workable for that.
It’s not possible to decouple this from serious economic problems because the ultra rich are not McDuck.
Lots of games (and certainly casinos) function on a “whale” basis. All customers matter, but your best customer(s), i.e. the “whale”, can be thousands of times more valuable than the rest. Some games take advantage of that by being “free” to the normal consumer and offering advantages to people who pay real money. I’m in one right now and some of my fellow players are paying thousands of dollars for an edge in a “free” game.
Our economic “whales” create much of our economic growth, and their wealth is largely a measurement of that positive economic impact. We don’t get growth from investment without investment, and preventing “the rich” from profiting from investment (or simply destroying them) doesn’t even attempt to solve that issue.Report
Isn’t the whole notion of free market capitalism in opposition to the “whales” idea?
Like, if for some reason Amazon went bankrupt tomorrow; some sort of malfeasance or ineptitude or something; Or maybe Bezos just flounces off to Galt’s Gulch in a huff and shuts the whole thing down;
Doesn’t market theory hold that another competitor or dozens of smaller competitors would immediately fill the vacuum and the market would stabilize?
Isn’t this what they call creative destruction?Report
Just the opposite. We expect there to be a vast difference between the average person and the best in a class, or the best customer, or whatever.
It is EXPECTED that there won’t be an even distribution of whatever, including money and willingness to spend it on X.
California uses this idea for a ton of it’s income, i.e. soak the whales during the good times, which is why the downturns are so painful because it’s money will dry up in a downturn.
If Amazon dies it will be replaced. The genii is out of that bottle… but the gov can simply outlaw genii as a concept.
Who is going to build a Trillion dollar company if the government won’t allow people to own 100 Billion dollar companies? Where do you get Billionaires to invest in new and weird ideas (or even expansions to existing companies) if the Gov doesn’t allow the existence of Billionaires?
The government has the ability to outlaw the market itself. Here it’s only getting rid of basic things the market currently uses to function, but we shouldn’t pretend they’re not basic.
We’re in this weird place where you want the gov to end how the market works but you also want to insist the market will work.
We’d be getting rid of large individual investors, and large individual entrepreneurs. Theory suggests this is terrible, various experiments around the world have shown that’s right.Report
You realize that you have just repeated George Carlin’s observation that if you give poor people money they will stop working, but if we don’t give rich people money, they will stop working?
Except, you’re doing it straight?
So like, if the maximum amount people could earn is a billion dollars, they would stop being creative? All these coders and app developers would say, “Damn, I can accumulate only a billion? Forget it!”
I find that to be an unpersuasive take on human nature.Report
I’m not saying they won’t work, I’m saying they won’t exist. That’s why “eat the rich” is the descriptive phrase.
A start-up funder (i.e. venture capitalist who tries to fund the next Alphabet), described the lifecycle of his firm. He’s a smart guy, he thinks he can pick the next winner, the first thing he does is find someone with a Billion dollars in change to invest in him. That way he can give 10 million to a hundred firms.
If the guy with a Billion dollars in change doesn’t exist, then there is no venture fund, and no wild idea seed money for start ups.
We also have the problem that telling Bezos we’re going to take 100 Billion of his money (and control of his company) if he doesn’t flee the country will have predictable results.
We also have the problem that we’re telling the next Bezos that he needs to create the next big idea in a different legal location or he will be destroyed after a certain point.
We’re destroying, delibrately, the investor and highly successful entrepreneur classes.Report
I guess it depends on what form the “eat the rich” takes.
For example, the New Deal produced the Great Compression, where the gap between rich and poor shrank considerably, with no noticeable lines for toilet paper.Report
Question: During the New Deal, how much start-up capital was needed to open a new business and make it profitable? If that value was much lower then than now (adjusting for inflation), you need to A) wonder why, and B) keep that proportionality in mind when thinking about the distance between SES.Report
Unemployment during the ’30s, the period of the New Deal, hovered around 20%. So while the ernings ceiling might have been lower, the floor was also lower. And much wider.
I will gladly take higher profits for some if it means there is an employment floor for others.Report
I think there’s a strong argument FDR’s war on the rich and efforts at equality made the Depression last much longer than it needed to… but that’s a deep dive subject and a serious expansion of the topic.
Even if we limit the topic to equality, the graph for the GINI index for that period of time doesn’t read like “the new deal was great”. The recovery after the Depression did the heavy lifting in terms of helping GINI.Report
My bar for thinking an economic policy is good is much higher than this.
“The gap” is not a useful measurement of anything useful and as such, narrowing it should not be a governmental goal.
Country “A” is a 1000 person country with one Trillionaire and 999 millionaires is seriously unequal. One guy owns 99% of everything.
Country “B” is a 1000 person country with everyone owning $1 is totally equal, however by any absolute measure it’s worse off.
Inequality of outcomes is both expected and, as I’ve pointed out repeatedly, useful in some situations.
Inequality of opportunity hits the radar as a problem, but it needs to be solved by not simply putting a cap on success because that leaves everyone poorer.
The bigger question SHOULD BE to what degree we have undeserved Billionaires?(*) One of the things which stands out is most Billionaires are new money, they founded a company and made it a success by creating vast economic wealth for the nation as a whole. That SHOULD BE acceptable behavior and SHOULD BE rewarded and encouraged.
(*)It is not lost on me that question, by itself, probably makes some heads on the Left explode. If you think it’s not possible to “deserve” to be a Billionaire then eating the rich is a goal, not a tool. If that’s the goal then the economic destruction caused by various policies may not matter and Country “B” is the more desirable situation simply because it’s more “ethical”.Report
(Brief aside, ’cause you’re doing great, but we had an Inequality Symposium back in 2012 that was pretty good.)Report
thank you.Report
One of the things which stands out is most Billionaires are new money, they founded a company whose hard working employees made it a success by creating vast economic wealth for the nation as a whole.
That SHOULD BE acceptable behavior and SHOULD BE rewarded and encouraged with fair pay and benefits like overtime and paid vacations and sick time.Report
The goal posts are going to be moved to show unhappiness no matter what the underlying reality.
At the absurd extreme we have AOC using your argument to destroy 10k Amazon “bad” jobs in her own district even though those jobs were everything you just mentioned and were $150k.
Worker pay is set by the market at this level of scale.
However these companies are creating so many jobs that employers are fighting for employees. They’re increasing the pay of the entire labor market by increasing the demand for labor.
Increasing worker pay, for the entire sector, is one more good thing we get by letting the evil rich exist.Report
Chip, why are you dying on this hill? TO defend Warren? I mean, you’re getting your ass handed to you on this issue and I can’t figure out why you keep getting up from the canvas. What principle or point or commitment are you defending?Report
This is trying to say all taxes are equal. This tax rounds to, over the course of one human lifetime, someone’s total economic output over the course of their lifetime.
If I have assets 10x my income, then this is a +60% increase in income taxes. With income and property taxes this probably means my total tax burden is over 100%.
England researched a wealth tax and realized how poisonious it would be, with sane exceptions it would cost more to administer than it would collect. France has a wealth tax at rates FAR LESS than this and has also discovered it’s poisonious; The socialists that run the country have tried to get rid of it because capital flight and so forth is not fun.
This is only true with tax rates that are less than 100%, for the people in question this is going to be multiple orders of magnitude more (for Bezos my back of the envolope suggests 5 orders of magnitude, i.e. 66000% of his income).
If he puts up with it then he will lose control of his company in something like 10 years.Report
I for one, fully endorse tax rates of less than 100%.Report
Here’s the thing, though, Chip. I’m just a third wheel in this discussion, but Dark is being serious about this issue, giving you serious arguments which you ought to take seriously. But you aren’t. You’re just not. You’re all hopey and changey and “we can do whatever we want” and all that. Which is why a lot of people don’t take the Democratic party seriously. Because it isn’t.Report
Investment capital flows towards after-tax return on investment, which is the result of many many factors. Tax rates are only one factor, and a minor one at that.
No, this is wrong. No matter how important the other factors are, the tax rate is very important because its effect is multiplicative, not additive. That is, a 50% corporate income tax cuts your after-tax return in half, relative to the tax-free counterfactual.
If you have a 50% corporate income tax and then repeal it, you’ve just doubled after-tax returns for anyone who invests in your country. That’s a big deal!
But…
Tax rates, both nominal and effective, vary around the world, yet if this theory were true, we would see investment capital consistently flowing towards low tax areas.
No, we wouldn’t. What we would see is that when a country reduces its corporate income tax, there’s an inflow of capital that continues until prices of factors of production within the country (mostly wages, but also land to a lesser extent) increase enough to offset the effect of the reduced corporate income taxes. This results in a new equilibrium where the country has more capital and higher wages than it would have without reducing the corporate income tax.
Why does capital not continuously flow into the country without limit? Because the inflow of capital causes wages to rise to the point where after-tax returns return to the global average.
Note that higher wages lead to higher personal income tax revenues, so we cannot know, a priori, that the corporate income tax rate which maximizes revenue from all taxes is always greater than zero.Report
Maybe I misunderstood your point, though. 🙂Report
I think it’s a problem the rich have to much influence on policy
Based on what? Let’s start from policy and work our way backwards. What about the policy we currently have suggests that the rich have too much influence and the middle class too little? I look at current policy and think it would probably be better if the middle class had less influence.Report
Maybe Chip requires a simpler analogy.
Income taxes are a bit like robbing a liquor store every few weeks, where some percentage of the days’ till is taken. Profits are lower but the inventory is intact. For simplicity lets ignore the store’s bank account and assume they keep their capital in liquor inventory, because the owner is totally focused on expanding and keeping a huge selection so his little corner store becomes Liquor Warehouse.
A wealth tax isn’t robbing the the liquor store’s register every few weeks, it’s having a twitter mob looting the shelves every few weeks, chanting that it’s not fair for the liquor store to have lots of liquor when they don’t.
The store’s inventory starts shrinking instead of growing, and the owner realizes that in a few short years, or maybe even sooner, his Liquor Warehouse won’t have anything left because mobs of rioters keep stealing it all.
He’s not going to bother restocking it because what’s the point? The mob is just going to steal anything he replaces. He’s going to try to unload anything he’s still got on some other owner whose store is in a better neighborhood (capital flight), even if he takes a big one-time loss on it, because that loss is going to be less than the loss he’s suffering, a loss to looters that’s driving his inventory to zero.
He might even distill much of his remaining stock into pure ethanol and burn it as motor fuel (capital destruction), similar to converting expensive real estate developments into section eight housing to appease the city (urban decay, ala Detroit).
And then, a few short years later, everybody who was looting the liquor store in the name of equality will be sitting on the corner saying “You know. This neighborhood used to have a nice liquor store. It used to have a lot of nice things, but we starting looting all the businesses and they left. Now we ain’t got nothin’.”Report
“The thread started with talking about the rich being different and having giant pools of money.”
No, you idiot, the thread started with talking about how people think the rich have giant pools of money.Report
Journalists a long time ago gave up on a few things: impartiality in the writing, and checking their sources, and getting multiple sources to confirm facts. They are now just partisan hacks. But they probably are average on not knowing math.Report
Twitter is an opium dream. I gather it’s a good place to find art and other entertainment but it’s also a place to find bad trips and deranged idiots. Personally I think journalists should be banned from using it at all but understand that is impossible- especially as the journalism industry itself appears to be steadily dissolving into social media.Report
for the $500 million Mike Bloomberg spent on his presidential campaign, he could have given every person in America one million dollars.
This is true, with only a few words changed:
for the $500 million Mike Bloomberg spent on his presidential campaign, he could have given every voter in American Samoa one million dollars.Report
I laughed, out loud, and for several seconds. Well done Mike.Report
It’s all good, man.Report
Yeah, I was trying to look for some way the math would work out. Like dollars per delegate? I couldn’t get there either.Report
There are two million kinds of people in the world…Report
The analogies of Twitter to a public square or a cocktail party kind of miss me, because at least in person I can give visual cues: Stinkfaces, aside glances, Irish goodbyes, and the like. On Twitter, I’m resorting to gifs, and even those really can’t give the effect of personal communication. Instead, we’re relying on ‘ratios’ and the like, and those invariably get worn like a badge of honor.
As long as there’s a lack of consequence to one’s Twittering, it’ll never match to real life. It just can’t, not until we get something like VR social media.Report