Redistributing An Immodest Suggestion

One of the ongoing “problems” of economics is the inherent conflict between “fair” distribution of wealth and “the propensity to invest”.

Basically, rich folks put more of their money into investments for future gain, and less of it into immediate consumption. Yes, they consume a LOT more than poor folks, but a dirt poor person consumes 100% (or more…) of their income. As the average wealth increases, increasing investment happens. At extreme levels of wealth, it is simply not possible to consume all the income and wealth that flows to the individual (or family).

So take a Bill Gates. Think he could possibly consume his $Billions in the years left in his life? Only via buying companies (investments), or land (farms or housing investments), or putting it into a “charity” 501c3 corporation that also uses money for things that are not personal consumption.

The net result is that “wealth accumulates”, mostly at the top.

Over time, this leads to two outcomes. One good, one not so good.

First off, the good one, we have large accumulations of wealth in the hands of a few, who do more investing with it. That’s sort of the whole point behind “allowing” wealth accumulation. To move more money out of consumption and into investment. Increasing the average “propensity to invest” via those rich pools leads to more total investment and more total economic growth. This is that “trickle down” folks talk about. Some “rich guy” like Bill Gates makes a bundle, and a few million ‘poor guys’ get jobs taking care of PCs running his software. We ALL get richer as investment leads to more economic growth.

Tax that wealth creation phase too much, the economy as a whole gets poorer. Yet, leave it as a totally ‘free market’ there are forces toward Monopoly Power that will result in there being ONE “rich guy” with all the chips. Not just manufacturing ‘economies of scale’ like in making steel, but ‘financial economies of scale’ where just being rich gets you lower costs at the bank… or you OWN the bank…and can exclude others from financing. So we need ‘anti monopoly laws’ and ‘anti-trust laws’ to prevent that kind of monopoly abuse or formation of ‘trusts’ to suppress competition. Yet we do need that wealth accumulation. History is littered with Democracies that fail as the voters “vote for themselves the largess of the public purse” and consume all the wealth. Ending in poverty. It’s a bad idea to eat your seed corn and someone needs to be in a position to make that “evil” choice that some folks don’t get to eat much now, so we have more to eat later.

Second, “The rich get richer” and the poor do not get rich (they get a better standard of living as the economy grows, but stay with high ‘income disparity’ compared to the ever more distantly rich folks). The expectation is that if the individual is frugal, and works hard; or has a very bright idea, they, too, can break into the “rich” group. Those who are rich but bad managers will squander their wealth and end up poor (or inherit it and end up spending it).

Furthermore, even a very bright and very frugal ‘poor person’ is faced with substantially insurmountable advantage in the hands of the wealthy. There are very rare exceptions, but substantially the patent and corporation / finance process lets the very rich squash the ‘poor but bright’ by a variety of means. (The ‘nicest’ of them being the ‘buy out’ where the poor guy gets a few $Million for an idea or company that threatens a few $Billion business of a rich person. In that case, they get a small step into the ‘rich’ group, but are still massively less rich. It is both a common strategy – the start up – and a common tool of wealth concentration “sell to us or we will crush you with our excess power”…)

“Redistribution” depends on life cycle changes. It also depends on there not being a “Dynasty” effect. Unfortunately, even dumb Rich Kids can hire smart lawyers and accountants to keep the dynastic wealth flowing and accumulating. The generally proposed “fix” for this is a “death tax”. When you die, a large part of the estate is taken as taxes and used to fund the economic game via the government.

While that sounds like a good idea, it causes 3 immediate effects.

First off, money that goes to the government leaves the productive sphere. So IFF I’ve got $10 Billion in productive investment, and there’s a 25% inheritance tax, then by definition $2.5 Billion of productive assets have to be dumped on the market and the money spent, via the government, upon a point event. That can be highly disruptive. (In particular, a large “family farm” often ends up sold, or sold in part, as that is the only way to raise the cash. Reducing the size of the farm and making it less efficient.)

Second, wealthy people (or their lawyers) are also fairly smart, so find ways to hand over the wealth prior to death. A load of insurance products exist to bypass the inheritance laws. Largely NOT of any benefit to the economy at large and mostly representing “gimmicks” that bypass the inheritance tax while wasting productive people on re-arranging the chips. Similarly, there are a load of “charities” that come into existence (like for Gates) where “the kids” can be on the executive board and get a nice paycheck for life, all while the “charity” is tax exempt. So the “kids” get to play in perpetuity doing quasi-productive (or often “looks nice but unproductive” work for “charity”…) A HUGE waste of effort in large part.

Finally, that money STILL piled up for a lifetime (sometimes wealthy folks live into their 80s or more…) and it just doesn’t “redistribute” anywhere near a rate that matters to most folks who are not wealthy. It puts very large “lumps” into the flow of wealth due to point event based actions. Furthermore, the wealthy move a lot of their wealth into corporations so it is NOT a personal wealth (then the ‘kid’ gets hired as an ‘executive’ and granted a load of cheap stock options to retain ownership of the wealth in the family). Again, more “games” and less productive activity; but with dynastic distortions that can last 100 years.

Somehow we want to maintain that increased propensity to invest, and wealth generation, while finding ways to eliminate the “inheritance games” that happen when rich folks die. To reduce the Dynastic Dominance and retain the wealth creation.

Socialism

The socialist answer is to have the Nation be the “Rich Evil Bastard” who has the increased propensity to invest. This is a good idea if you have nearly nobody already in a position to do investing. (So if a nation is entirely impoverished, there isn’t a Rich Guy do do the excess investing. Putting that power into the hands of foreign rich rarely results in your nation having a large creation of a wealth creating class). Thus we saw large gains in investment under Stalin in Russia and even in China today under the Central Committee.

But Socialism has the same problems of wealth concentration and the conflict with immediate consumption desires. It just makes “The Rich Evil Bastard” the head of the government. Personally, having ONE Evil Bastard (or Evil Bastard Party) owning everything and living a life of great power and advantage does not look like much of an improvement to me. IF the Socialism tries to fix that via ‘enough’ democratic power, it eventually decays into over consumption and under investment. Along the way you end up with the same ‘income disparity’ as under capitalism, but via who has the most Political Skill and can kiss up the right people enough to get the right government position. This often leads to bad investment decisions that are politically beneficial to the individuals. So then you have the same ‘disparity’ but with even worse investment decisions. While it’s easy in the early stages for a Stalin to say “make more steel mills”, it is much harder for them to envision cell phones obsoleting their whole telephone infrastructure, and even harder for them make that choice of ‘creative destruction’.

The end result is that Central Planning in Socialism (either in the Communist form or in the Fascist form) works well in early stages of economic growth when massive underinvestment is the problem and which investment isn’t a very important question; but it does not work nearly so well in developed economies where you absolutely need those unexpected ‘bright ideas’ that are politically hard, but economically smart. Also, over time, the Central Authority is subject to “power corrupts and absolute power corrupts absolutely”. The dynastic power forms, but via political means, and without much competition to assure it’s the better decision making and not just the most ruthless. So most Socialisms have ended in tyranny or underinvestment / poor investment. (The “National Socialisms” like Fascism in Italy and Nazism in Germany headed more into tryanny – though Stalin was rather a bit of a tyrant too. The USSR and Mao’s China were incredibly stupid on investments in economic growth.)

The “answer” to this has been proposed as “Market Socialism”. Where there’s a whole zoo of different variations. The whole idea being to have “managed markets” or “regulated markets” where the best of market forces are kept in play (so competition moves things along to better investment choices) yet under the thumb of Central Planners (sometime called Government Regulators…) to prevent too much disruption and too much exploitation “of the people”. While this has some very good advantages, it still ‘has issues’.

The prototypical form of this is Lange Type Socialism. At the most modest, it is called “The Mixed Economy” (as pushed by Samuelson – and the form of Economics in which I was most indoctrinated). The whole idea in Lange Type is that major industries, like steel, are pretty well obvious in what to do and there isn’t much reason to leave it owned by some private wealthy Evil Bastard, who will largely just use it as a cash cow to dominate other industries. So we make it owned ‘by the people’. But leave the average hot dog cart and shoe store in private hands (since, presumably, they make better decisions about their local clients and a Central Committee is less likely to know that the locals like a special mustard on their Polish Dog…)

There are a host of problems here. The question of “are they less than the alternatives of Communism and Capitalism” are hard to answer. IMHO, there’s an existence proof that it beats Communism once past the basic investment decision level rising out of poverty. The history in Germany, Italy, even in post-Mao China all argue for it being a fairly effective system. (The USSR stands out as a spectacular example of how Communism stagnates and fails once past the ‘steel, concrete, and rails’ phase. Similarly Mao’s China and the current North Koreans). For Capitalism, we also know that unbridled Free Markets lead to the domination of a few (very few in most cases) families with great dynastic wealth. The ‘limit case’ shows up in Monarchy where both money and political power are concentrated in one set of hands. Over history, we’ve tried to split political power from monetary. That, then, resulted in the USA and the Robber Barron era. Very effective economic growth, but with the formation of family dynastic wealth that persists to this day. (Rockefellers anyone?…)

So the USA put in place a lot of anti-trust and anti-monopoly laws, put in place an income tax and inheritance tax (and a load of other taxes) and we ended up with the “mixed economy”. Then began the growth of the Regulation Nation.

And that, IMHO, points up the major “problem” with the mixed economy spectrum into the Lange Type Socialism.

There is a very fuzzy line between ‘regulated capitalism with progressive taxes and laws’ and “Central Planning Socialism”.

So we end up with ongoing fights between the private capital owners and the public regulators / taxers.

On the one hand, that can reduce private investment and lead to under-investment and under-invention. A Central Planned Economy will suppress (either deliberately or by ‘accident’) such things as the creation of cell phones and mp3 downloads. The direct suppression will come from things like The Communications Commissar who doesn’t want a threat to his authority. The more indirect comes from simply having things like, say, a “regulation” stating that “all telephones must be connected to the network via a 2 twisted pair wire of 16 gauge”. How can you have a ‘cell phone’ without wires when the Law requires wires? You end up in ‘catch 22′ situations where you can’t make a company due to the law, and can’t change the law due to ‘no market’ or ‘no demand’ (yet). ONE of the advantages of a ‘free market’ is that the individual can say “up yours!” and just start making cell phones.

Yet somehow we need to prevent things like Monsanto dumping PCBs that can make them a lot of money, but at the expense of making a lot of other folks sick. Unfortunately, the history of Socialism has been that the Central Commissar Of Chemicals is often just as willing to dump toxic chemicals into the environment that makes folks sick. Basically. the “Evil Bastard” is not made any less evil if acting out of Political Greed instead of Economic Greed.

The “hard bit” is finding a way to let the “Free Market” run, and gore whatever established ox needs goring, while still having enough “regulation” to prevent the Evil Bastards of the world from sticking it to US. Attempts to do this via Government Regulation are only partly successful. Private Corporations come to dominate the regulatory bodies and turn them to private purposes. So, for example, Monsanto has had a large ‘turn over’ of people between them and the regulatory agencies. They also fund a lot of political campaigns. The result is that they have effectively bought the right to patent life, owning the very stuff of life, and getting the regulations they want (essentially no limit on GMO foods).

Similarly, GE has moved to dominance in light bulbs via the “Green Bulb” movement ban on cheap bulbs. About 4 years back, there were 3 or 4 major bulb vendors on the shelves, with the typical bulb about 20 cents. (I bought many for inventory…) As the incandescents were so cheap, the “curly bulbs” were not selling well at $5 to $10 each. “Subsidy” was applied and even at $1 each, they didn’t sell all that well. ( I also bought an inventory on ‘subsidy’ for $1 to 50 cents each. I now have a lifetime supply of bulbs ;-) So GE started pushing for a lightbulb ban law. And got it. Now if you go into Target, or heck, even Walmart, the lightbulb section is substantially the “GE section”. Only a very small token non-GE part remains. Gone are all the “subsidy” curly bulbs (so Lights Of America was not found on my last trip to Walmart – despite having bought most of my inventory there as L.O.A. bulbs) but a large section of GE bulbs at $5 to $10 each was on display. Similarly a visit to the local Lucky’s Grocery store has been interesting. The “light bulb” section has shrunk from about 12 linear feet of 5 foot tall shelving to about 3 to 4 feet (and about 1/3 of THAT is non-bulb electrical things like drop cords and such). Gone are several vendors and their products. In essence, GE has now bought less competition and much better profit margin via influencing the regulations to their benefit.

Is that a “good thing”? Well, if you like paying $5 for light bulbs, I suppose it is… If you like NOT having choice. A ‘curly bulb’ can take 5 minutes to warm up and produce full brightness. It also has a limited number of ‘starts’. So a ‘bad choice’ for things like closets where you want instant light for about 30 seconds, many times a day. A 19 cent incandescent is a much better economic decision in that case. Similarly, a ‘yard light’ for security lighting needs fast brightness and often benefits greatly from NOT dumping mercury on the ground when broken – as ‘bad folks’ often did at one rental – making a ‘hazardous waste’ zone. If you are a GE stockholder, it’s likely a ‘good thing’ too. But for the average poor person buying a light bulb, it’s a very bad result.

So those are a couple of examples of “how it goes bad” when you attempt to use regulation and Central Planning. Largely as ways to patch around problems in Capitalism while still avoiding the bigger problems of Socialism. We need some regulation, but with a light hand. Certainly guarded against corporate influence pedaling. I can’t answer how to get that part done here, but realize ‘it is an issue’. But what about the wealth concentration ‘problem’? Could we reduce that focused concentration and the political influence it buys?

The Immodest Suggestion

So we’ve now got a full blown Progressive Socialist as President, elected for a second term by The People (so clearly that’s what they want).

Is there any way to solve some of the wealth concentration and dynastic wealth problems without a slide into full blow Socialism?

IMHO, the major problems with the present system are based on two points. First, concentration on income instead of wealth and second, use of death as a triggering event. A third point is the exemption of Corporations from much of this nonsense since they “never die”. So there’s a lot of incentive to wash things through the corporate form.

It looks to me like the answer is just to address those point ‘head on’.

First off, why wait for death to redistribute? The idea is to let the wealth accumulate to get more total investment. That if you just take it away during life, there isn’t much incentive to create it in the first place. So we tax ‘income’ in a progressive way, but leave wealth taxing for the dying point. Why wait?

So I’d propose a “wealth tax” based on “what you own”. Make it low, like say 2% / year. That way it doesn’t wipe someone out once they ‘retire’, and does let wealth grow, but helps to prevent dynastic wealth and helps to prevent the ‘point event’ problem. Any decent investments ought to be yielding more than 2% anyway, so the only folks this would ‘wipe out’ are the ones making bad investment decisions. The incentive will be to make only those investments that yield more than 2%, so we ought to get more investment into better yielding productive areas. At 2% a year, there are a couple of nice effects. First, it takes more than a lifetime to tax it all away. Second, as it is a percentage, the most wealthy pay more and as your wealth dissipates, it is 2% of an every smaller pool, so your taxes drop. You are never taxed to poverty, only to less wealthy. Also, I’d add a simple “progressive” aspect. Anyone with less than ‘the average wealth’ would pay no tax. Only those with ‘above average wealth’ get to fund the system that is making them wealthy. As soon as you drop below the 50% percentile of wealth, you too get a free ride.

Since it doesn’t matter when you give the wealth to the kids, it eliminates a whole lot of that dynastic planning dislocation. In fact, as long as they are ‘below the average’ you can shelter wealth by giving it to them.

Now I’d also remove the corporate exemption. MOST of America is owned by corporations. Why should THEY get a ‘free ride’ on the wealth hoarding issue? Any company that can’t make more than 2% ought to be finding something else to do anyway. Those making more than 2% can continue to grow nicely, so we’ll continue to get wealth creation. All the ‘corporate shelters’ evaporate as moving the money into a non-growing company doesn’t gain you anything. Oh, and no exemption for “charities”. They, too, need to pay some of the costs of the rest of us. As the money will be used by the government to do “good things” and the poor are not paying for them, it’s a kind of charitable expenditure anyway …

In this way the biggest concentrations of wealth can be properly redistributed to public goods, while leaving plenty of incentive to wealth creation (in fact, focusing it into the 2%+ better areas) and getting rid of a lot of unproductive ‘make work’ tax dodge activity.

I’d eliminate the death tax in this context. In that way you don’t have the dislocations of the ‘point events’. A large family farm can keep on being a large family farm (as long as it can produce more than 2% per year of gain) and folks know each year how much ‘bite’ to prepare for. As there are no exemptions or legal manipulations, there’s no need for all the millions of hours of labor that go into ‘estate planning’ and lawyers and accountants. Just one number, the average wealth of every ‘person’ in the country, needs be published once a year. If above that, you pay 2%. If below that, you don’t. ( I’ll leave it for others to decide if you ought to get a cheque if below that cut off, or just a ‘free ride’ on the system…)

Over time, those “foundations” and “charities” that have a large endowment, but invest badly, will decrease. Those that invest at better than 2% gains will continue to grow (and pay ever higher ‘wealth tax’, as they ought). Those people who are creating massive wealth gains (like Gates did, or like all the folks who make money on the IPO of Facebook) can still gain loads of wealth on those events (but slowly be taxed back to ‘average’ over 50 years or so if not continuing to be productive).

We continue the advantages of wealth concentration and propensity to invest, but focus it more accurately. We removed a lot of ‘dead weight’ costs from the death tax. We eliminate the ‘point event’ dislocations and we eliminate the ‘corporate exemption’ (why ought ‘un-natural persons’ be advantaged over natural persons?) While allowing plenty of wealth to be created, we still provide a good supply to be ‘redistributed’ to those who are most in need. 2% / year is a load of money. Realize there’s a lot more wealth than there is income… Speaking of which, I could see a very good case for elimination of the income tax. It, mostly, prevents folks at the bottom (who MUST live off of income) from getting ahead via saving and investing it. Since, once they are ‘above average wealth’ we start taxing that anyway, why not let income be free of taxation? Now the ‘least wealthy’ but bright can accumulate their income as ‘petty capitalists’ until such time as they, too, become wealthy. Over time, an ever larger wealthy cohort of folks will form at the ‘just above average’ point.

The end result of this would be ‘most folks just above average wealth’. The exceptionally wealthy and the obscenely wealthy corporations and foundations would be paying most of the costs of the ‘game’ they are winning. The poor get a free ride. The ‘Middle Class’ get a low cost ride until they are ‘above average wealth’, and then get to start paying too. Folks can still ‘strike it big’, yet have an incentive to ‘outperform 2%’ even in pedantic investments. So ongoing investment incentive remains. Yet the dynastic wealth and power games, along with the Death Tax Dodge games also end.

In Conclusion

That’s my proposed solution to our Socialist Dilemma. Since we are now firmly on the track to a Socialist System, might as well look for ways to avoid the bad things of other Socialisms while exploiting the benefits. Leave most investment in the hands of capitalists, competing with each other. Regulate, but minimally. (I’d eliminate the ability of corporations to make campaign contributions or lobby congress, but that’s just me. Frankly, it ought not make much difference if the Rockefeller’s write the check personally, or via their ‘foundation’, or via a corporation they own. Once the incentives to ‘wash’ the money through corporations via their infinite life are removed, then there’s less need for corporate funding of campaigns anyway.) And have the system ‘somewhat progressive’ in that the poor don’t have to ‘pay to lose’ while the rich have to ‘pay to win’.

The 2% hurdle rate is low enough that it ought not discourage investment, invention, and risk taking to any significant degree. The losses from “badly investing wealthy folks” ought to be more than made up by ‘better investing poor people’ who are not now burdened by income taxes and the lack of corporate advantages.

In the end, all of society ought to be lifted up at a reasonable rate, while letting the poorer folks be lifted faster while the richer are not too heavily burdened.

That’s the best solution I’ve been able to think up so far. So kick it around… Since we’re going to be stuck in this Socialist Trap for at least a generation (that’s how long it seems to take to go from this point to ‘revolt’) we might as well try to find the best way to make it comfortable.

Oh. and this is only about 1/2 sarc…

Update: Just don’t call it The Smith Tax ;-)

Subscribe to feed

About these ads

About E.M.Smith

A technical managerial sort interested in things from Stonehenge to computer science. My present "hot buttons' are the mythology of Climate Change and ancient metrology; but things change...
This entry was posted in Economics, Trading, and Money, Political Current Events and tagged , , , , , . Bookmark the permalink.

22 Responses to Redistributing An Immodest Suggestion

  1. J Martin says:

    Innovative.

    But the politicians will never go for it as it removes some of their power and control.

    But it might happen after the third world war which is due to start in about 2060 or so.

  2. E.M.Smith says:

    @j. Martin:

    Thanks! Glad you liked it. I’ve been pondering this issue since about 1975 or so….

    BTW: 2060? Optimist! ( I’d give it 2040 tops, and 2030 more likely with 2020 a distinct ‘likely’)

    As for “not going for it”: You have a short list… Not just politicians, but think of the massive numbers of lawyers, lobbyists, accountants, rich people, foundations, and just about every corporation out there (domestic AND foreign DBA American). It essentially would be opposed by every single level of power in the political economy. That’s part of what makes me think it’s likely the right answer ;-)

  3. p.g.sharrow says:

    One small problem I see. All real property owners already pay about a 2% tax on that wealth to their local government. There are also already taxes on wealth in many other things in many jurisdictions. Actually only wealth in money, investment metals,stocks and bonds are somehow not taxed. I wonder why that is? ;-( pg, just a poor dirt farmer.

  4. p.g.sharrow says:

    World War 3 in 20 to 40 years! Where have you guys been. We have been in WW3 for 40 years! Iran declared war on us over 30 years ago. The Muslim Brotherhood before that. Solders of the House of Saud carried out massive destruction in New York City 11 years ago. Warriors of Islam have been killing thousands across Africa as well as many in most of the rest of the world every week HELLO! waki, waki. Solders and civilians all over the world are fighting the militant followers of Mohammad every day. Soon we will be fighting for survival. pg

  5. Power Grab says:

    I’d like to see what my former econ prof (now retired) would have to say about this idea. Smith tax indeed? ;-)

    I read a book one time that said that debtor nations eventually declare war on the nations that are their creditors. Supposed to have gone on that way for eons.

    @ PG – but haven’t the Muslim nations (ummm…or at least their antecedents) been destined to be at war with someone or other ever since their inception?

    @ EM – I like how you frame discussions like this. They seem somehow sterile and civilized, and separated from the muck and mire of strife that the situations cause.

  6. Graeme No.3 says:

    Who defines average wealth? I think that very shortly 2 effects will be rampant. The wealthy will suddenly get a whole lot poorer (at least in the taxing country). The really rich will take up residence somewhere else, at least for legal purposes. Others will find ways to hide the wealth.
    The result will be more people finding that they are paying wealth tax, and that won’t make it popular.
    Secondly, you will find, probably under the nearest rock, a politician advocating a higher tax rate, partly to pay for all the public servants who have appeared on the payroll to administer the tax.

    The family farm won’t be immune either. A bad year or two will mean part of the farm will have to be sold. Unless of course they get someone to claim that the reduced income makes the whole farm now worth less than before.

  7. adolfogiurfa says:

    Increasing competence among less wealthy lords and giving the administrative role to one king it has been the best system….at least when the climate is warm, like in the medieval warm period, that of the benevolent kings and fairy tales, when everywhere crops blossomed and vineyards were found as far north as north Ireland.

  8. Rob R says:

    One alternative I have seen proposed by others is a small tax on all financial transactions (where money changes hands). This would tend to be paid predominantly by those who have substantial wealth. Presumably small cash purchases would be exempt so as not to hurt the poor. This system would be like a GST (goods and services tax) but would have a broader base. It would take a small haircut from each transaction across the whole “Wall Street” sector including trading in shares, options, other derivatives, CFD’s, commodities, property etc. This is not a wealth tax as such, but rather a tax on the moving of wealth.

  9. It’s always bugged me that the really bright people go into shuffling money around. It’s an intelligent choice for them, but it takes an awful lot of inventiveness out of the industrial area. You’re right that nearly every power-base will be against this plan – it’s far too simple and thus too difficult to find an escape loophole. Maybe the sudden onset of the tax as you pass the threshold is the only thing I’d say was a bit of a problem.

    In the UK, there’s a tax on buying houses that changes from 2% under £500,000 to 7% once you pass that threshold. A friend of mine has just contracted to buy a house for £499,950.

    With a combination of wealth tax and maybe VAT, there would be possibly no need for income tax, and there would be suddenly a lot of accountants and tax collectors out of work. Since they are, IMHO, a drag on the economy in such numbers, I can’t see this as a bad thing. On its own it might boost the economy dramatically. Short-term pain, though.

  10. Richard Hill says:

    + PG Sharrow. Also, in Bavaria in the 1970′s they had a 2% or so on wealth tax on all property, incl investments. I dont know if it still exists. Such wealth taxes are an invitation to avoidance,
    Unimproved land taxes (ref Henry George from the 1800′s) are close to EM’s idea. Personally, I think the Henry George concept has a lot of merit. Land is the ultimate property and it is very hard to hide land’s unimproved value. There used to be a Henry George Justice Party here in Australia, but it seems to have died away.

  11. Loved it, and the prior post on the fallout from going down a socialist path. My question is “what opportunities for investment will arise from a cooling climate vs the MSM heralded “warming” that seems to be a reality only if you ignore the actual science.”

    It’s driving me crazy to hear every other news report swirl around somehow to “…because our climate is warming”.

    Of course, being a semi-rational guy living near the Canadian border, I can see how warming is your friend, whereas cooling would suck the root. Also knowing that a static climate is not in the cards, I would personally prefer something similar to the Roman Warm Period with atmospheric CO2 at around 1,200 ppm, just for the sake of my garden. It’s either going to get warmer, or colder. I vote for warmer.

    But that doesn’t mean I would pass up the chance to profit from the idiocy of the average granola munching (partial disclaimer. I like granola, in moderation), brain washed American warmist if the climate does what I’m afraid it’s about to do during the coming solar minimum.

    So, what’s the opportunity?

  12. John F. Hultquist says:

    “In the UK, there’s a tax on buying houses . . . ”

    In the US, one of the things mostly agreed on by political types is that home ownership should be encouraged. Rather than just giving people money and letting them buy what and where they want, the various ways of encouraging ownership have been directed at government agencies and lenders. These groups grow and make money by encouraging poor folks to buy homes they cannot pay for nor care for. The recent housing bubble and financial crisis had its birthing in this “encourage home ownership” concept.

    In the State of Washington (where I currently live) all non-food sales are taxed at about 8% (varies a bit by city, county) but home sales are not taxed in this way. (Many costs of buying and selling, though.)

    For the somewhat well off, this is about to change, starting in 2013.

    The following is a quote from the link below it:

    “The provision under the new health care law that’s stirring up all of these emails is a Medicare tax of 3.8% imposed on investment/unearned income for high income taxpayers. High income taxpayers means those individual taxpayers reporting income over $200,000 and married taxpayers filing jointly reporting income over $250,000.”

    http://www.taxgirl.com/ask-the-taxgirl-real-estate-tax-in-health-care-law/

    I think we can assume that the seller will try to get a higher price insofar as this tax has to be paid by the seller and not the buyer, as a regular sales tax on say a car or toaster would be.

  13. EM, Switzerland has a wealth tax. It varies between cantons (states) as does income tax. see this http://www.lowtax.net/lowtax/html/jswpetx.html which says 0.3% pa in canton Zurich but I recall 1% in another canton. Switzerland says it is the longest existing democracy since 1215, The democracy has evolved over time especially citizen initiated referendum and electronic voting. I recall not long ago in a referendum the voters passed a resolution to expand a nuclear power facility (canton Bern I think). In my experience the citizens there due to the long history think hard about the long term future including jobs and not so much about welfare handouts which maybe a short term benefit but is a long term negative.

  14. DirkH says:

    “The end result is that Central Planning in Socialism (either in the Communist form or in the Fascist form) works well in early stages of economic growth when massive underinvestment is the problem and which investment isn’t a very important question; ”

    There is a huge problem with that. The very first modern centrally planned economy manifested itself in Stalin’s first 5 year plan 1923 or so. Now, this plan mandated the building of 630 factories.

    a) Who wrote this plan, b) how did he know that these were the things needed, c) and who built them?
    Answers:
    a) Albert Kahn, the architect of Henry Ford, an American entrepreneur and most successful industry architect of his time in the US.
    b) Well he knew because he copied the basic infrastructure of the capitalist society he helped build to a large extent. HE HAD THE BLUEPRINTS.
    c) American and German companies.

    And who paid for the investment? Western capitalists, who got mineral concessions from the young USSR in exchange.

    ChiefIO, you say, which investment isn’t a very important question. I couldn’t disagree more. The USSR was about to collapse and BROKE before the first 5 year plan. When you’re broke, or practically broke, it is even MORE important than otherwise to know into which thing to invest first.

    And there’s the experience problem. The central planner was de facto an experienced guy from the West. Stalin or any of his bolshevics had a lot of experience in waging civil war and killing opponents but NOT in building up a modern society; and Marx tells them NOTHING about that.

    As an isolated system, central planning does NOT work in practice. Just like free market economists model a society based on the assumption of rational investors, meaning, investors that have ALL the information available which is ill defnined from the start, see the definition of an oracle in Computer Science, and therefore do not model realistic behaviour, the information problem in central planning is FAR worse than even von Mises realized – as there is no risk taking outside the state or the grey economy going on.

    In later years the USSR constantly helped itself to industrial secrets from the West and emulated all kinds of Western developments. They were not able to develop much by themselves, besides finding some raw materials, most prominently their oil and gas reserves.

  15. DirkH says:

    “The USSR stands out as a spectacular example of how Communism stagnates and fails once past the ‘steel, concrete, and rails’ phase.”

    The second 5 year plan was more of the same . Stalin just had his people build several times the infrastructure planned by Albert Kahn.

    After that, – without Kahn’s planning experience – darkness.

  16. DirkH says:

    Richard Hill says:
    10 November 2012 at 12:41 am
    “+ PG Sharrow. Also, in Bavaria in the 1970′s they had a 2% or so on wealth tax on all property, incl investments. I dont know if it still exists.”

    In Germany, the wealth tax has been ruled unconstitutional, as our constitution promises to protect private property.
    During the past decades, the state has reacted by increasing income tax, capital gains taxes, and VAT. Depending on the flavor of government it shifts back and forth very slightly between these poles.

    The system works rather well. When you have a fortune, you’re not incentiviced to leave to a neighbouring country; so the rich stick around – and when they invest their fortune, they are gonna pay some serious taxes on the gains – and they NEED to invest to escape our modest inflation.

    Even though we have no wealth tax and ARE a wealthy nation, our Gini index is below the US’s.

  17. Richard Ilfeld says:

    REALLY BAD IDEA, E.M. We’ve had a wealth tax here in Florida for a long time – the “Intangibles” tax. Its fine when wealth produces income. But when wealth, as bonds and CD’s, produces negative income due to inflation, AND then you are taxed on this “wealth” those old folks who live on their investments have to start making different choices at the grocery store. Since it takes a couple of Million in CD’s at today’s rate to support even a fairly modest life, especially for renters, the pain is palpable. But owning a home adds more “wealth” that is heavily taxed, without producing income. Of course, an enlightened federal government would NEVER just “tweak” the rates up a little “Temporarily”.

    You can tax income, wealth, or consumption.
    Taxing income after exemptions for the income to support a nominal middle class life, and consumption outside of the necessities, should more than support the government we need to manage their part of the system.

    Give me an honest answer – is their more abuse that hurts the lives of folks in governments gone wild, or the robber barons? If Government only assures that we have enough evil rich bastards to compete with each other, and favors growth over retention, we’ll be fine, and have great stories for hollywood to tell us about the same evile bastards being beaten from time to time by ordinary heros – I can name a dozen movies where evil oils drillers are bested by Average Joes off the top of my head, and Cattle barons by loan Sherrifs or wandering guns, and and and.

    The recently re-anointed has economic views, but I’d argue they are not the reason he won, nor of interest to many of the electorate beyon their personal economic circumstances.

    For me its’ simple. Putting police and economic power in the same hands is the end of things. CA has a supermajority now, se we have a laboratory test case at heand! Watch, and since you live there, watch out!

  18. Richard Ilfeld says:

    PS – California’s Cap and Trade auction is NOV 14. A new $3B whack at California industry right out of the box. Hellooooo, Nevada. And Texas.

  19. DirkH says:

    Richard Ilfeld says:
    10 November 2012 at 3:17 pm
    “Give me an honest answer – is their more abuse that hurts the lives of folks in governments gone wild, or the robber barons?”

    It could also be mentioned that during the time of “Robber Baron” Rockefeller, the price of oil DROPPED – because hewas called “robber baron” by his COMPETITORS – he ate their profits by undercutting them – “robbing” what they thought they were entitled to.

    Henry Ford was likewise the bad guy for the likes of Studebaker or Duesenberg, churning out cheap cars, ruining the boutique car makers of the day.

    Modern times examples: Bill Gates – he wrecked the business of the Unix workstation makers with Windows 3.0 – which had hand-optimized assembler code to create a gaphical user experience similar to the high-priced X-Windows Unix workstations who needed much more CPU horse power to achieve the same – even though cleaner in concept, it was the PC that came to the help of the downtrodden masses – and not the Apple MacIntosh with its high price tag. I know ChiefIO hates MSFT but that’s how it was for me… there are different angles to their story.

    Ruthless businessmen? You bet.

    Or Steve Jobs. Nokia probably still has a grudge against him.

    No Lange-type socialism even attempts at producing something on this scale.

  20. John Robertson says:

    Nice summary of our status, I have to read it a few more times for understanding sake, on surface you outline a practical approach, so its probably doomed, no concentration of power to the right people.
    Have wondered if 10% solution would work, that of a flat tax of 10% on everyone but local only, county or municipality collects 10% of gross, pays 10% to state, state pays 10% to Federals.
    Seems this 10% was good enough for Rome for a few hundred years of european history.
    The advantage is we can all count to 10 and incentive is not crushed as govt cannot grow past 10% of economy.However like your approach to concentrated wealth as I had not considered a way to deal with that. Figured human nature drags on inherited wealth, without incentives stupidity rules until the wealth is gone,as the character of 2nd and 3rd generation members of wealthy families are mostly a caution. Your way might limit the damage a little.

  21. John Robertson says:

    As a postscript just bought a bunch of incandescent bulb , yep all made in China.

  22. Panama says:

    While income and lifestyle are all relative, an after-tax income between $6.6k and $8.3k per month today will hardly buy the fantasy lifestyles that Americans see on TV and would consider “rich”. In many areas in California or the East Coast, this positions one squarely in the hard working upper-middle class, and strict budgeting will be essential. An income of $190k post tax or $15.8k per month will certainly buy a nice lifestyle but is far from rich. And, for those folks who made enough to accumulate this much wealth during their working years, the reduction in income and lifestyle during retirement can be stressful. Plus, watching retirement accounts deplete over time isn’t fun, not to mention the ever-fluctuating value of these accounts and the desire of many to leave a substantial inheritance. Our poor lower half of the top 1% lives well but has some financial worries.

    REPLY: This was in the SPAM queue, and has several hallmarks of SPAM. It looks, to me, like one of the machine generated ‘sort of on topic’ comments with an advertising link in the name / email. I’m letting it through just due to the information about costs in Panama. Be advised. Oh, and if the psoster thinks it isn’t SPAM, i.e. if they read this, they can comment to that effect… -E.M.Smith

Comments are closed.