I'm not sure I understand this. I thought taxing the "wealthy" to raise money for social programs was a good policy. Is he trying to say "full employment" is a better way? How do you get money for social programs or don't you? Just because you can't define "wealthy" or "economic inequality" doesn't mean that you can't make a good policy to combat "economic inequality.
I think it might be easiest to think about permanent incomes rather than wealth or present income. this would allow you to account for peoples assets as they are expected to accrue interest over time, account for factors like how social security reduced the need for most of us to save (effectively increasing our incomes in the present), and helps explain why the student who just graduated from college w/ lots of debt still feels ok about buying 12$ salad for lunch.
The other weird thing about wealth taxes from a "lowering one kind of consumption to raise another" perspective is that wealth taxes only apply to people who don't destroy things. If Jeff Bezos buys a billion dollars worth of gold, he'll be taxed on it every year, but if he launches that gold into the sun, he'll get a multi-million dollar per year tax break. As these inevitably expand the taxes to lower wealth levels, you get absurd situations like a doctor who invest her income paying a much higher tax bill (on the original income, not the investment returns!) than another doctor who spends their whole income on buying and drinking expensive alcohol.
The headline should be "the wealth *gap* isn't what matters" because it is a weird metric that, to your point, "improves" when the economy tanks, which is bad. So yes, the wealth gap is an idea that makes less sense the more you look at it.
But having some "wealth," meaning some level of assets that are liquid or near liquid, is a really good shock absorber that allows individuals or families to maintain their socioeconomic status through downturns. Even if your income is middle or up class, if you don't have net worth and you lose your job, you're going to fall a few rungs down the ladder. Wealth absolutely matters in that regard. It's why white families are better able to withstand recessions than Black families, and that fact is why the wealth gap concept gained traction. It's a shorthand to describe the entire concept.
And I loved the housing thought experiment, but I think we can get a lot closer to that reality by switching to Georgist land taxes and away from property taxes rather than Houses-R-Us mega housing conglomerates, although I appreciate it was a silly way to illustrate a serious point (housing is a commodity that should be cheap and plentiful).
Owning the home that you live in is a great idea thanks mostly to the tax code. The mortgage-interest and property-tax deductions are part of it, but the biggest part may be that imputed income isn't taxable.
If you rent a home worth $500,000 and have $500,000 earning dividends or interest then you pay income taxes on the dividends/interest and what you have leftover isn't remotely enough to pay your rent. If you then buy that home with your $500,000 the dividend the house pays to you is being able to live there rent-free. The dividend from that investment is the amount the home would rent for. But that dividend is non-cash, so you don't pay income taxes on it. This is a big improvement for your cash flow. (Even if you get a mortgage and pay interest on it, you are still better off owning due to the tax-free imputed income.)
There have been countries in the past that have taxed the imputed income you get from living in your own home, but I don't think any are doing that today. Getting such a big dividend tax-free is an enormous benefit. If you were to rent out your house to others and live in the equal-value house next door as a renter, the entire benefit disappears and you are much worse off (the rental income is taxable and you would not have enough leftover to pay your rent).
I think that you bring up a lot of great points about problems with how we measure wealth inequality. For example, we really should include the estimated worth of social security and all pensions when we measure wealth inequality, especially when comparing how egalitarian countries are.
When measuring the racial wealth gap we should measure within wealth distribution groups. Low interest rates greatly increase the racial wealth gap among the top 1% and that overwhelms the impact on the rest of the population, but looking at how it affects the racial wealth gap among just the middle class should be informative. For example that kind of analysis would highlight how home ownership subsidies increase the racial wealth gap.
Another problem with wealth inequality is power inequality. Maybe we don't want a single person being able to have sole decision making power over a company, and wealth tax would force founders to give up more control of their companies by having to sell shares to other rich people. But first we should ban the practice of founders getting 50% of decision making shares even when they don't own 50% of the company, which is what Facebook has done.
I believe that this is why Warren has proposed the wealth tax. The purpose isn't really a way to raise government revenue, but is to force more companies to spread out decision making power. Founders can still control their companies if they have the backing of their shareholders, like Bezos did with Amazon despite only owning 10-20% of shares.
The real inequality of concern is wealth generation and inequality in wealth generation capacity. Poverty isn't lack of income, it's a chronic incapacity to generate wealth, and negative wealth generation. Unfortunately, wealth generation capacity doesn't sound easy to measure.
Milanovic, the world-wide inequality expert formerly at the world bank once made a similar point in reaction to someone who pointed out the value of social security and all the rest of the social security net. By that accounting, he argued, the typical inhabitant of Yugoslavia, 1980, with job security etc was a millionaire in today’s money.
Matt, I encourage you to give this topic a deeper look.
Several of your points deal with short-term considerations and the paradoxes that arise. But the short-term is mostly irrelevant. Wealth is primarily a strategic political/economic asset: it provides the ability to act decisively, or to delay.
Wealth has a disproportionately strong effect on the political behavior and concerns of individuals and groups -- precisely because people understand its strategic importance. Two quick examples: the 1970s property tax revolts (and really the entire history of wealth and property taxation in the US) and the 19th-century politics of slavery (Gavin Wright's wealth-centered analysis of southern politics approaching the Civil War influenced me greatly).
Distinctions among those on the lower end of the wealth scale are not useful and can generate perverse conclusions. Arguments for the political importance of wealth and the wealth distribution do not hinge on small differences at the pool's shallow end.
Yes, wealth does assume intangible forms and paradoxes abound (same thing applies to money). Such paradoxes are not fatal for the concept.
More concretely, a wealth tax (not the modern narrowly-framed real estate tax) was the workhorse of state governments in the United States for decades. Of course, it was complex, took various forms among the states, was different in reality than on paper, and gave rise to dilemmas. But it was not dysfunctional or somehow incompatible with modern economic arrangements (contra its critics and dismissers). Finally, it generated political hostility, and eventually was eliminated, precisely because contemporaries grasped the political and economic importance of wealth taxation, wealth distribution, wealth as an analytic category.
Monty - I hadn't heard that a "a wealth tax (not the modern narrowly-framed real estate tax) was the workhorse of state governments in the United States for decades."
Would you share some resources to learn more about that?
Hi John: In my biased opinion, this dissertation is the authoritative source: https://deepblue.lib.umich.edu/handle/2027.42/78949 (I think you can download the pdf; if not, let me know and I can provide a different link). Because it's too long, I did try to make the introductory chapter (and the intros/conclusions of each chapter) do a decent job of summarizing. The bibliography is extensive as well and I can provide some further guidance if want recommendations.
On the last section, that the point of taxation is to constrain some consumption and increase others:
I can see that a one-time tax of 2% ("two cents!") of Bezos's wealth won't change his consumption much no matter how you measure wealth. But I can still imagine that taxing 2% of the wealth (however measured) of Bezos and many many other wealthy people, year in year out, after a generation or two could result in significant changes in society-wide patterns of consumption.
It starts to add up, and perhaps most importantly I suspect the wealthy would start to relate to consumption differently if their great wealth is made to feel temporary.
There's something wonderfully alchemical about this that I don't understand. The 2% of Amazon stock we'd be compelling Bezos to sell doesn't have "real value" to him because it wouldn't affect his consumption, his control over Amazon, etc. But that stock is converted into tax receipts that creates healthcare and other wonderful things for people which, if not increasing their wealth, does improve their quality of life.
Turning something of almost no value into something of great value: a neat trick! It *sounds* like it works, but yet . . .
Matt links to Dean Baker who mentions the MMT viewpoint that tax isn't about creating things of value, since the government can just print money. Under this view the point of taxation is to relieve inflationary pressure or more generally change patterns of consumption, including via redistribution. And the Dean Baker / Matt Yglesias viewpoint here seems to be that taking a percentage of Bezos-level wealth doesn't do that; and that therefore a wealth tax is a bad idea.
I think Dean Baker and Matt are not correct. One, I suspect this simplified take on the MMT view of taxation may not be the whole story on taxation. But more importantly, I think a wealth tax, in effect year after year indefinitely, would absolutely change consumption. Again, it starts to add up, but more importantly it makes great wealth inherently more temporary than it is today, which is likely to change how to wealthy relate to it from the start.
I think the flaw here is saying that forcing Bezos to sell 2% of his Amazon stock into the market and then hand the government the proceeds won't affect his behavior. This may be true for a true one-off, never-again tax - but that's not what the wealth tax proposal is, it's 2% year after year, indefinitely. After a decade Bezos would have 18% less Amazon stock, and that *does* affect incentives.
I think there are three separate threads here that are a little tangled together in the post:
1. Policies that destroy wealth at the top do not generate equality
2. "Wealth" as a defined term is squishy in the context of the welfare state and education
3. Certain kinds of wealth are bad for society overall
Item 1 is only sort of true, and Matt says as much. If you use a hammer like monetary policy then sure, you are going to impoverish everyone a bit and that will hurt the poor. But there are all kinds of distortions that could be addressed to make owning equity (either public, private or home) a little costlier and less valuable. Matt alludes to pigouvian solutions and those are wealth destructive. Those types of targeted interventions address item 3. When you combine those with the implication of item 2 (people are wealthier than they are on paper), then you have a more egalitarian society.
Hi Matt, great piece with a gloss on Apple that could really use revision:
"Apple doesn’t own the factories where the iPhone is made. The most valuable company in the world is mostly a cluster of brands, patents, trademarks, and human relationships. The companies like Foxconn and TSMC that own the physical capital used to make Apple gear are decent businesses, but the best businesses are very heavily tilted toward the intangible."
1. Apple's value comes from knowing how to produce extraordinarily useful tools that most productive rich people purchase. Patents and trademarks are details, brand is an epiphenomenon. "Human relationships" is part of it, but not the essence. César Hildalgo's work focuses on this point; see your boy Paul Romer's encomium: https://paulromer.net/why-information-grows/
2. Foxconn *is* a great deal of that know-how; the underlying relationship between Foxconn and Apple is complex. Apple bullies them a lot, but then the Chinese government sort of owns Apple via its high level control over Foxconn. To your larger point, how the accounting is done is sort of beside the point.
These are all good reasons why “wealth”, individual net worth as of today, is problematic for measuring how well off 25 year olds and billionaires are in the short run, why it might be better for us to have less of our individual wealth tied up in housing, and why social security is good.
But I don’t think that’s convincing that “wealth isn’t what matters”. We need some way of measuring how financially secure people are that takes into account current income, future income, assets/liabilities and other benefits (gov health insurance, social security).
Totally agree the argument that student loan forgiveness helps low-wealth people is dumb because by definition they have big student loan balances and may be negative.
But we also need a measure that helps distinguish a 30 year old making $50k/year with a big student debt balance and renting an apartment from someone with same age and income with no student debt and paying a mortgage because their parents supplied tuition and a down payment— because they had more wealth than the other parents.
Also someone making $40k with a degree at age 25 is likely to earn more over the course of her life, and be much better off, than someone age 60 making $40k with no degree.
Most of our means testing is income based, which misses this distinction— that’s the key reason I see for this (currently not great) part of the discourse right now. Survey questions like “Could you handle a surprise $400 expense?” try to get at it. Credit scores try to build a picture of your future ability/reliability to pay, which is kind of close.
So sure, net worth isn’t a great indicator for taxing and means testing, but there’s got to be some measure to pull out what pure income misses.
Why does there have to a measure? People seem to be assuming there is some equation that will reflect their intuitive sense of who is "rich" and who isn't, but it doesn't have to exist. There doesn't need to be a "correct" way of ranking people according to wealth. Every approach will highlight some aspects and underweight others.
For sure, people always argue about how to define rich and there's no perfect answer. But for policy, we definitely have to pick a measure for things like a) tax rates and b) targeting policy outcomes. Tax rates are mostly based on your annual income and people who are 'income rich' pay more, but the Elizabeth Warren "wealth tax" would try to charge everyone over $50 million in wealth a % of their net worth. When people argue for student loan forgiveness a lot of times they say it will help people with less wealth-- which sounds good, but many are just young people with student loan debt at the time who will probably make a lot of money over the next 30 years and don't really need help.
I agree that we should define policy goals first. I just feel that a lot of the discussion around these things seems to devolve into trying to decide who is "too rich". A wealth tax because "billionaires shouldn't exist" seems pointlessly punitive to me. The wealth of the richest is almost all on paper anyway; whether Bezos has $50b or $100b seems completely irrelevant.
But, yeah, I was just nitpicking your last sentence; I liked the rest of your post!
100% — I’m always kinda thrown off by people getting extra hyped about billionaire bashing. The point should be what helps people who need it the most. BUT I do think it’s kinda funny basically everyone points to someone like 20% richer than them to draw the line for what’s REALLY rich.
Yeah, this seems basically right to me. Matt has convinced me with this post that measuring wealth instead of income is going to cause all sorts of weird distortions that don't reflect things that matter. But I think the same is true about measuring income instead of wealth.
This is really smart analysis though I still think income is a much better measure in terms of taxation. Sure the 25 y/o and the 60 y/o making 40k/year are in very different situations, but I still think its fair to tax them the same. The 25 y/o will probably end up making 100k soon enough and we can tax them more when they get there.
Totally agree! That example makes me think more about the student loan forgiveness debate where ppl argue it will help those with less wealth. True... but that can mean young people with a debt balance and no savings yet who have degrees and good incomes and are going to be fine in the long run. Not helping generationally wealth poor families as much.
I maintain the position I took a few weeks ago, which I think complements Matt's.... that wealth inequality itself is not ipso facto a moral atrocity. The moral issues have to do with the way we've both legally and culturally linked capital to personal dignity and access to things that really should be basic human rights (health care, housing, education, freedom from incarceration, etc). There's something in here about "class" in the way Scott Alexander depicted it... class isn't your income bracket or wealth, it's your social status, the deference your wants and needs are given by others, heavily influenced by your wealth in our culture but really a function of all sorts of personal characteristics, both innate and influenceable. Wealth gives you more influence over the characteristics that increase your social status (degrees, fancy clothes, Substack subscriptions that help you sound smart), which in turn gives you more influence over your outcomes in life and the outcomes of people and causes you care about. People with less access to capital often struggle to secure the basics like housing, health care, education, effective legal protections--never mind Beamers and Substacks. The cultural association of wealth to social status to human dignity is the first moral problem. The close second (or arguably bigger) one is gatekeeping access to the basics with a price tag higher than many can afford. Raw wealth redistribution is not the worst idea, but it's also not the only way or the best way to address the problems we really care about. We could start by questioning whether a college degree is really a job requirement as often as we claim it is, for example.
That being said, I'm not sold on government owned housing for all. Sounds rather Soviet to me. "Capitalism is the worst economic system except for all the others that have been tried" and all that. But Matt has convinced me of contrarian ideas before!
Ok Marie, let me know when you start your own substack and I'll be the first subscriber. :) I get profoundly uneasy by the left's tendencies to pick policies based on jealousy and resentment, then go to these extremes to try to fix an unfair world (abolish private schools, abolish billionaires, no private home ownership.) The reason why "Capitalism is the worst economic system except for all the others" is that people are naturally selfish and want to benefit/protect themselves and their family. Wouldn't it be great if we all just wanted to share? But we don't, so you have to work within that framework; you have to start with that principle. Then you can try to even the playing field somewhat. I like what MutterFodder posted as well as John from Fl. As MutterFodder suggested, instead of focusing on the injustice of privilege, create a system that offers opportunity for the underprivileged. Invest in elementary schools and mentorship programs; make community college free (Pasadena Community College offers this); incentivize/subsidize small businesses in poor areas;
promote criminal justice reform, etc. You want a wealth tax on the uber-rich? Fine, but it's not enough. Yes, the system is unfair, but I think solution should be more about empowering the have-nots, than punishing the have's.
people are naturally selfish. they're also naturally generous. how much in either direction and toward whom is heavily influenced by institutions, policies, norms, etc. not just a fact of nature.
-"I get profoundly uneasy by the left's tendencies to pick policies based on jealousy and resentment, then go to these extremes to try to fix an unfair world " - me too and add to that a tendency to try to fix unfair history- talk about an exercise in futility
-Re: capitalism, I was naively thinking one day, what if we got rid of capitalism and just had a point system where you could earn points by helping other people and give points to people who helped you? Then I realized that was capitalism.
-Re: Substack, I keep trying to start one and then my toddler needs me :D
I think you're the one that linked the idea of wanting to accumulate personal wealth to the inclination to rape a couple of days ago? Let's re-phrase that by saying human nature has a tendency to be greedy, selfish and aggressive. State of nature stuff. We are never going to overcome those impulses; we can only try to mitigate and tame them. Please recognize the damage that has been done to people and societies where extreme fairness was attempted. My dad was a Marxist. It's a lovely idea. Where has it worked? Where?
I’ve enjoyed the series of articles speaking about the utility of focusing on wealth inequality, racial wealth gaps, or just inequality per se as policy areas to focus on. I think these topics have more usefulness as political talking points than anything else. Subsequently trying to frame policies in ways that let you say you’re “addressing the gaps” and score some political points often translates to practically bad ideas. We should look at specific areas and ask “what can we do to materially benefit the worst off people today?,” or something like it, and move forward from there. I think another commenter mentioned it, but it’s differences in consumption that matter. I know huge wealth gaps can cause some political issues and don’t want to discard it completely. But there are much more fruitful areas to look to when your concern is making sure folks can manage much better day to day, get good educations for their kids, save some money for retirement, etc.
I'm not sure I understand this. I thought taxing the "wealthy" to raise money for social programs was a good policy. Is he trying to say "full employment" is a better way? How do you get money for social programs or don't you? Just because you can't define "wealthy" or "economic inequality" doesn't mean that you can't make a good policy to combat "economic inequality.
I think it might be easiest to think about permanent incomes rather than wealth or present income. this would allow you to account for peoples assets as they are expected to accrue interest over time, account for factors like how social security reduced the need for most of us to save (effectively increasing our incomes in the present), and helps explain why the student who just graduated from college w/ lots of debt still feels ok about buying 12$ salad for lunch.
The other weird thing about wealth taxes from a "lowering one kind of consumption to raise another" perspective is that wealth taxes only apply to people who don't destroy things. If Jeff Bezos buys a billion dollars worth of gold, he'll be taxed on it every year, but if he launches that gold into the sun, he'll get a multi-million dollar per year tax break. As these inevitably expand the taxes to lower wealth levels, you get absurd situations like a doctor who invest her income paying a much higher tax bill (on the original income, not the investment returns!) than another doctor who spends their whole income on buying and drinking expensive alcohol.
The headline should be "the wealth *gap* isn't what matters" because it is a weird metric that, to your point, "improves" when the economy tanks, which is bad. So yes, the wealth gap is an idea that makes less sense the more you look at it.
But having some "wealth," meaning some level of assets that are liquid or near liquid, is a really good shock absorber that allows individuals or families to maintain their socioeconomic status through downturns. Even if your income is middle or up class, if you don't have net worth and you lose your job, you're going to fall a few rungs down the ladder. Wealth absolutely matters in that regard. It's why white families are better able to withstand recessions than Black families, and that fact is why the wealth gap concept gained traction. It's a shorthand to describe the entire concept.
And I loved the housing thought experiment, but I think we can get a lot closer to that reality by switching to Georgist land taxes and away from property taxes rather than Houses-R-Us mega housing conglomerates, although I appreciate it was a silly way to illustrate a serious point (housing is a commodity that should be cheap and plentiful).
Owning the home that you live in is a great idea thanks mostly to the tax code. The mortgage-interest and property-tax deductions are part of it, but the biggest part may be that imputed income isn't taxable.
If you rent a home worth $500,000 and have $500,000 earning dividends or interest then you pay income taxes on the dividends/interest and what you have leftover isn't remotely enough to pay your rent. If you then buy that home with your $500,000 the dividend the house pays to you is being able to live there rent-free. The dividend from that investment is the amount the home would rent for. But that dividend is non-cash, so you don't pay income taxes on it. This is a big improvement for your cash flow. (Even if you get a mortgage and pay interest on it, you are still better off owning due to the tax-free imputed income.)
There have been countries in the past that have taxed the imputed income you get from living in your own home, but I don't think any are doing that today. Getting such a big dividend tax-free is an enormous benefit. If you were to rent out your house to others and live in the equal-value house next door as a renter, the entire benefit disappears and you are much worse off (the rental income is taxable and you would not have enough leftover to pay your rent).
I think that you bring up a lot of great points about problems with how we measure wealth inequality. For example, we really should include the estimated worth of social security and all pensions when we measure wealth inequality, especially when comparing how egalitarian countries are.
When measuring the racial wealth gap we should measure within wealth distribution groups. Low interest rates greatly increase the racial wealth gap among the top 1% and that overwhelms the impact on the rest of the population, but looking at how it affects the racial wealth gap among just the middle class should be informative. For example that kind of analysis would highlight how home ownership subsidies increase the racial wealth gap.
Another problem with wealth inequality is power inequality. Maybe we don't want a single person being able to have sole decision making power over a company, and wealth tax would force founders to give up more control of their companies by having to sell shares to other rich people. But first we should ban the practice of founders getting 50% of decision making shares even when they don't own 50% of the company, which is what Facebook has done.
I believe that this is why Warren has proposed the wealth tax. The purpose isn't really a way to raise government revenue, but is to force more companies to spread out decision making power. Founders can still control their companies if they have the backing of their shareholders, like Bezos did with Amazon despite only owning 10-20% of shares.
The real inequality of concern is wealth generation and inequality in wealth generation capacity. Poverty isn't lack of income, it's a chronic incapacity to generate wealth, and negative wealth generation. Unfortunately, wealth generation capacity doesn't sound easy to measure.
Milanovic, the world-wide inequality expert formerly at the world bank once made a similar point in reaction to someone who pointed out the value of social security and all the rest of the social security net. By that accounting, he argued, the typical inhabitant of Yugoslavia, 1980, with job security etc was a millionaire in today’s money.
(Milanovic’s blog is glineq.blogspot.com)
Matt, I encourage you to give this topic a deeper look.
Several of your points deal with short-term considerations and the paradoxes that arise. But the short-term is mostly irrelevant. Wealth is primarily a strategic political/economic asset: it provides the ability to act decisively, or to delay.
Wealth has a disproportionately strong effect on the political behavior and concerns of individuals and groups -- precisely because people understand its strategic importance. Two quick examples: the 1970s property tax revolts (and really the entire history of wealth and property taxation in the US) and the 19th-century politics of slavery (Gavin Wright's wealth-centered analysis of southern politics approaching the Civil War influenced me greatly).
Distinctions among those on the lower end of the wealth scale are not useful and can generate perverse conclusions. Arguments for the political importance of wealth and the wealth distribution do not hinge on small differences at the pool's shallow end.
Yes, wealth does assume intangible forms and paradoxes abound (same thing applies to money). Such paradoxes are not fatal for the concept.
More concretely, a wealth tax (not the modern narrowly-framed real estate tax) was the workhorse of state governments in the United States for decades. Of course, it was complex, took various forms among the states, was different in reality than on paper, and gave rise to dilemmas. But it was not dysfunctional or somehow incompatible with modern economic arrangements (contra its critics and dismissers). Finally, it generated political hostility, and eventually was eliminated, precisely because contemporaries grasped the political and economic importance of wealth taxation, wealth distribution, wealth as an analytic category.
Monty - I hadn't heard that a "a wealth tax (not the modern narrowly-framed real estate tax) was the workhorse of state governments in the United States for decades."
Would you share some resources to learn more about that?
Hi John: In my biased opinion, this dissertation is the authoritative source: https://deepblue.lib.umich.edu/handle/2027.42/78949 (I think you can download the pdf; if not, let me know and I can provide a different link). Because it's too long, I did try to make the introductory chapter (and the intros/conclusions of each chapter) do a decent job of summarizing. The bibliography is extensive as well and I can provide some further guidance if want recommendations.
In other words, the true wealth is the friends we made along the way.
On the last section, that the point of taxation is to constrain some consumption and increase others:
I can see that a one-time tax of 2% ("two cents!") of Bezos's wealth won't change his consumption much no matter how you measure wealth. But I can still imagine that taxing 2% of the wealth (however measured) of Bezos and many many other wealthy people, year in year out, after a generation or two could result in significant changes in society-wide patterns of consumption.
It starts to add up, and perhaps most importantly I suspect the wealthy would start to relate to consumption differently if their great wealth is made to feel temporary.
There's something wonderfully alchemical about this that I don't understand. The 2% of Amazon stock we'd be compelling Bezos to sell doesn't have "real value" to him because it wouldn't affect his consumption, his control over Amazon, etc. But that stock is converted into tax receipts that creates healthcare and other wonderful things for people which, if not increasing their wealth, does improve their quality of life.
Turning something of almost no value into something of great value: a neat trick! It *sounds* like it works, but yet . . .
Matt links to Dean Baker who mentions the MMT viewpoint that tax isn't about creating things of value, since the government can just print money. Under this view the point of taxation is to relieve inflationary pressure or more generally change patterns of consumption, including via redistribution. And the Dean Baker / Matt Yglesias viewpoint here seems to be that taking a percentage of Bezos-level wealth doesn't do that; and that therefore a wealth tax is a bad idea.
I think Dean Baker and Matt are not correct. One, I suspect this simplified take on the MMT view of taxation may not be the whole story on taxation. But more importantly, I think a wealth tax, in effect year after year indefinitely, would absolutely change consumption. Again, it starts to add up, but more importantly it makes great wealth inherently more temporary than it is today, which is likely to change how to wealthy relate to it from the start.
I think the flaw here is saying that forcing Bezos to sell 2% of his Amazon stock into the market and then hand the government the proceeds won't affect his behavior. This may be true for a true one-off, never-again tax - but that's not what the wealth tax proposal is, it's 2% year after year, indefinitely. After a decade Bezos would have 18% less Amazon stock, and that *does* affect incentives.
I think there are three separate threads here that are a little tangled together in the post:
1. Policies that destroy wealth at the top do not generate equality
2. "Wealth" as a defined term is squishy in the context of the welfare state and education
3. Certain kinds of wealth are bad for society overall
Item 1 is only sort of true, and Matt says as much. If you use a hammer like monetary policy then sure, you are going to impoverish everyone a bit and that will hurt the poor. But there are all kinds of distortions that could be addressed to make owning equity (either public, private or home) a little costlier and less valuable. Matt alludes to pigouvian solutions and those are wealth destructive. Those types of targeted interventions address item 3. When you combine those with the implication of item 2 (people are wealthier than they are on paper), then you have a more egalitarian society.
Hi Matt, great piece with a gloss on Apple that could really use revision:
"Apple doesn’t own the factories where the iPhone is made. The most valuable company in the world is mostly a cluster of brands, patents, trademarks, and human relationships. The companies like Foxconn and TSMC that own the physical capital used to make Apple gear are decent businesses, but the best businesses are very heavily tilted toward the intangible."
1. Apple's value comes from knowing how to produce extraordinarily useful tools that most productive rich people purchase. Patents and trademarks are details, brand is an epiphenomenon. "Human relationships" is part of it, but not the essence. César Hildalgo's work focuses on this point; see your boy Paul Romer's encomium: https://paulromer.net/why-information-grows/
2. Foxconn *is* a great deal of that know-how; the underlying relationship between Foxconn and Apple is complex. Apple bullies them a lot, but then the Chinese government sort of owns Apple via its high level control over Foxconn. To your larger point, how the accounting is done is sort of beside the point.
These are all good reasons why “wealth”, individual net worth as of today, is problematic for measuring how well off 25 year olds and billionaires are in the short run, why it might be better for us to have less of our individual wealth tied up in housing, and why social security is good.
But I don’t think that’s convincing that “wealth isn’t what matters”. We need some way of measuring how financially secure people are that takes into account current income, future income, assets/liabilities and other benefits (gov health insurance, social security).
Totally agree the argument that student loan forgiveness helps low-wealth people is dumb because by definition they have big student loan balances and may be negative.
But we also need a measure that helps distinguish a 30 year old making $50k/year with a big student debt balance and renting an apartment from someone with same age and income with no student debt and paying a mortgage because their parents supplied tuition and a down payment— because they had more wealth than the other parents.
Also someone making $40k with a degree at age 25 is likely to earn more over the course of her life, and be much better off, than someone age 60 making $40k with no degree.
Most of our means testing is income based, which misses this distinction— that’s the key reason I see for this (currently not great) part of the discourse right now. Survey questions like “Could you handle a surprise $400 expense?” try to get at it. Credit scores try to build a picture of your future ability/reliability to pay, which is kind of close.
So sure, net worth isn’t a great indicator for taxing and means testing, but there’s got to be some measure to pull out what pure income misses.
Why does there have to a measure? People seem to be assuming there is some equation that will reflect their intuitive sense of who is "rich" and who isn't, but it doesn't have to exist. There doesn't need to be a "correct" way of ranking people according to wealth. Every approach will highlight some aspects and underweight others.
For sure, people always argue about how to define rich and there's no perfect answer. But for policy, we definitely have to pick a measure for things like a) tax rates and b) targeting policy outcomes. Tax rates are mostly based on your annual income and people who are 'income rich' pay more, but the Elizabeth Warren "wealth tax" would try to charge everyone over $50 million in wealth a % of their net worth. When people argue for student loan forgiveness a lot of times they say it will help people with less wealth-- which sounds good, but many are just young people with student loan debt at the time who will probably make a lot of money over the next 30 years and don't really need help.
I agree that we should define policy goals first. I just feel that a lot of the discussion around these things seems to devolve into trying to decide who is "too rich". A wealth tax because "billionaires shouldn't exist" seems pointlessly punitive to me. The wealth of the richest is almost all on paper anyway; whether Bezos has $50b or $100b seems completely irrelevant.
But, yeah, I was just nitpicking your last sentence; I liked the rest of your post!
100% — I’m always kinda thrown off by people getting extra hyped about billionaire bashing. The point should be what helps people who need it the most. BUT I do think it’s kinda funny basically everyone points to someone like 20% richer than them to draw the line for what’s REALLY rich.
Yeah, this seems basically right to me. Matt has convinced me with this post that measuring wealth instead of income is going to cause all sorts of weird distortions that don't reflect things that matter. But I think the same is true about measuring income instead of wealth.
Exactly.
Yes, exactly this. "The current measurement is bad" is hugely different from "the concept doesn't matter".
This is really smart analysis though I still think income is a much better measure in terms of taxation. Sure the 25 y/o and the 60 y/o making 40k/year are in very different situations, but I still think its fair to tax them the same. The 25 y/o will probably end up making 100k soon enough and we can tax them more when they get there.
Totally agree! That example makes me think more about the student loan forgiveness debate where ppl argue it will help those with less wealth. True... but that can mean young people with a debt balance and no savings yet who have degrees and good incomes and are going to be fine in the long run. Not helping generationally wealth poor families as much.
I maintain the position I took a few weeks ago, which I think complements Matt's.... that wealth inequality itself is not ipso facto a moral atrocity. The moral issues have to do with the way we've both legally and culturally linked capital to personal dignity and access to things that really should be basic human rights (health care, housing, education, freedom from incarceration, etc). There's something in here about "class" in the way Scott Alexander depicted it... class isn't your income bracket or wealth, it's your social status, the deference your wants and needs are given by others, heavily influenced by your wealth in our culture but really a function of all sorts of personal characteristics, both innate and influenceable. Wealth gives you more influence over the characteristics that increase your social status (degrees, fancy clothes, Substack subscriptions that help you sound smart), which in turn gives you more influence over your outcomes in life and the outcomes of people and causes you care about. People with less access to capital often struggle to secure the basics like housing, health care, education, effective legal protections--never mind Beamers and Substacks. The cultural association of wealth to social status to human dignity is the first moral problem. The close second (or arguably bigger) one is gatekeeping access to the basics with a price tag higher than many can afford. Raw wealth redistribution is not the worst idea, but it's also not the only way or the best way to address the problems we really care about. We could start by questioning whether a college degree is really a job requirement as often as we claim it is, for example.
That being said, I'm not sold on government owned housing for all. Sounds rather Soviet to me. "Capitalism is the worst economic system except for all the others that have been tried" and all that. But Matt has convinced me of contrarian ideas before!
Ok Marie, let me know when you start your own substack and I'll be the first subscriber. :) I get profoundly uneasy by the left's tendencies to pick policies based on jealousy and resentment, then go to these extremes to try to fix an unfair world (abolish private schools, abolish billionaires, no private home ownership.) The reason why "Capitalism is the worst economic system except for all the others" is that people are naturally selfish and want to benefit/protect themselves and their family. Wouldn't it be great if we all just wanted to share? But we don't, so you have to work within that framework; you have to start with that principle. Then you can try to even the playing field somewhat. I like what MutterFodder posted as well as John from Fl. As MutterFodder suggested, instead of focusing on the injustice of privilege, create a system that offers opportunity for the underprivileged. Invest in elementary schools and mentorship programs; make community college free (Pasadena Community College offers this); incentivize/subsidize small businesses in poor areas;
promote criminal justice reform, etc. You want a wealth tax on the uber-rich? Fine, but it's not enough. Yes, the system is unfair, but I think solution should be more about empowering the have-nots, than punishing the have's.
people are naturally selfish. they're also naturally generous. how much in either direction and toward whom is heavily influenced by institutions, policies, norms, etc. not just a fact of nature.
-"I get profoundly uneasy by the left's tendencies to pick policies based on jealousy and resentment, then go to these extremes to try to fix an unfair world " - me too and add to that a tendency to try to fix unfair history- talk about an exercise in futility
-Re: capitalism, I was naively thinking one day, what if we got rid of capitalism and just had a point system where you could earn points by helping other people and give points to people who helped you? Then I realized that was capitalism.
-Re: Substack, I keep trying to start one and then my toddler needs me :D
I think you're the one that linked the idea of wanting to accumulate personal wealth to the inclination to rape a couple of days ago? Let's re-phrase that by saying human nature has a tendency to be greedy, selfish and aggressive. State of nature stuff. We are never going to overcome those impulses; we can only try to mitigate and tame them. Please recognize the damage that has been done to people and societies where extreme fairness was attempted. My dad was a Marxist. It's a lovely idea. Where has it worked? Where?
I’ve enjoyed the series of articles speaking about the utility of focusing on wealth inequality, racial wealth gaps, or just inequality per se as policy areas to focus on. I think these topics have more usefulness as political talking points than anything else. Subsequently trying to frame policies in ways that let you say you’re “addressing the gaps” and score some political points often translates to practically bad ideas. We should look at specific areas and ask “what can we do to materially benefit the worst off people today?,” or something like it, and move forward from there. I think another commenter mentioned it, but it’s differences in consumption that matter. I know huge wealth gaps can cause some political issues and don’t want to discard it completely. But there are much more fruitful areas to look to when your concern is making sure folks can manage much better day to day, get good educations for their kids, save some money for retirement, etc.