The Rich Get Richer. Good

Line up any bunch of political lefties anywhere and their key to delivering free stuff is taxing the rich. This applies to all of the Democrat presidential candidates in the USA. In addition to confiscatory income taxes, Pocahontas (aka Elizabeth Warren) wants to impose a wealth tax, in the style of French socialist economist Thomas Piketty.

Apparently, those rich people are selfishly keeping goodies from us ninety-five percenters. This is the grievous money delusion (GMD) which seduces callow minds. It can only be compared to the grievous warming delusion (GWD) which has swept away reason among so many in recent years. It is perhaps no coincidence that those particularly susceptible to GMD succumb to GWD.

It is also disappointing that economists, worthy of the name, in other words, excluding sad lefties like Paul Krugman and his ilk, hardly ever explain the position clearly. They generally go to the point that high taxes undermine incentive. They do to an extent. But only to an extent.

There was an instructive survey of Ford Motor company workers in the late Sixties I think it was. They were asked whether they thought their fellow workers would likely work less overtime if taxes were increased. Something like ninety percent said yes. They were then asked whether they personally would work less overtime. Something like ninety percent said no.

The real argument against confiscatory taxes is not to do with incentive, it is to do with the with the driving force of successful capitalist economies. That driving force is capital investment fuelled by saving and augmented by invention. Saving some of what is produced and using it to sustain life while things are built like, factories and machines, which help make more goodies, cheaper goodies, better goodies and new (previously unthought of) goodies.

For those who have not read me before on this topic I will put the position in stark terms. The rich do not have goodies to share. Well, not to speak of. Take their mansions. These could be reduced to tiny pieces of rubble and shared about. Care for a small piece of rubble, poor person? Take their fancy cars. Care for an extremely tiny piece of a nut and bolt, poor person? Money cannot be eaten, cannot be used for clothing or for shelter and cannot drive people around.

Don’t get me wrong. I would like more money even with the added risk it brings to one’s chances of heavenly ascension. That is why I buy the odd lottery ticket. And I am all in favour of taxing the rich rather more than the poor. But quantity matters. I like “desert island examples” because they reveal unadorned truth.

Among the marooned is an ingenious and industrious chap, call him Bill, who has worked hard to pick and store extra coconuts. Some of those less adept at picking coconuts ask Bill for some of his to help them out. He agrees but says only so many because I need the rest to tide me over while I build a boat. With a boat I will employ people to help me catch fish and, to one extent or another, we shall all be better off. And so it was. Imagine now Pocahontas in the brew. Most of Bill’s extra coconuts are shared about. Bill doesn’t build his boat. Everyone suffers.

Rich people mainly own titles to things – businesses, properties, factories, mines – which cannot be divided up. The titles can be divided up. So instead of a comparatively few rich people owning everything, everyone owns a title to, say, one billionth of a factory. What exactly do you think they will do with it? I’ll tell you what they’ll do. They will swap it for goodies.

Demand for goodies will soar. The economy will re-gear to produce goodies. Pretty soon only goodies will be produced. Capital investment will stall. The capital stock will run down. Progress will reverse. Poverty will rise. Welcome to a socialist paradise. Equality of impoverishment.

Concentrations of wealth are an essential driving force of economic progress. An analogy serves well enough. Let’s take Edison’s brains and, say, Einstein’s, Archimedes’, Fleming’s, da Vinci’s, Tesla’s, Gutenberg’s, and those of other geniuses and spread them thinly to increase the intelligence of the populace by one-millionth percent. Doesn’t work, does it. We stand on the shoulders of giants, whether that is in the field of science or invention or art; and also, to be clear, in the practical economic affairs of men and women.

It’s not all gain. Rich people can be insufferable, swanning around Monti Carlo in Lamborghinis. More seriously, concentrations of wealth produce corruption. The rich have a habit of bribing eminently bribable politicians and public officials. It is not a perfect world. That’s why we need Eliot Ness in the guise of vigilant and independent anti-corruption bodies.

I have written many times on this topic. Why do it again? I must like tilting at windmills: railing against the storm of ignorance that passes for economics these days.

14 thoughts on “The Rich Get Richer. Good

  • Ian MacDougall says:

    “The Gini Coefficient, which is derived from the Lorenz Curve, can be used as an indicator of economic development in a country. The Gini Coefficient measures the degree of income equality in a population. The Gini Coefficient can vary from 0 (perfect equality) to 1 (perfect inequality). A Gini Coefficient of zero means that everyone has the same income, while a Coefficient of 1 represent a single individual receiving all the income.”
    In my humble opinion, countries with low Gini coefficients, tend to be more pleasant places to live than those with high ones. Less investment capital tends to get blown on keeping obnoxious regimes in power, and more on such worthwhile ventures as health, roads, communications and education.


  • Les Kovari says:

    We must have rich people, without them we could not have poor people.

  • Ian MacDougall says:

    Les: Why do we want poor people, or are you volunteering?

  • Peter Smith says:

    “The poor you will always have with you…” (JC)

  • DG says:

    If people work hard, take risks or even have the right parents and are rich the foundational ethic is that the money is theirs. A modicum of taxation recompenses society for the civil infrastructure which enabled the wealth gathering, but the rich are not to be soaked. Unlike the poor, in this day an age, where they can’t afford energy because the government soaks them to pay the richer for their energy fantasies.

  • Ian MacDougall says:

    DG: “Unlike the poor, in this day an age, where they can’t afford energy because the government soaks them to pay the richer for their energy fantasies.”
    By ‘fantasies’ I take it you mean the outrageous notion that the coal and oil won’t last forever, and that there are no better uses for it than the ones we have.
    I agree. Pretty outrageous. God should have set it up so that it would all last forever, or until the Second Coming at least.

  • Peter Smith says:

    Just a point re Ian’s point. Resources will not run out ever (whatever ‘ever’ means) under capitalism. Capitalism is a living system which adjusts in numbers of ways to potential shortages long before they become acute.

  • Ian MacDougall says:

    Peter, are you saying that the fossil carbon (coal and oil) will last forever?
    Otherwise, you have a point. The smart money right now is getting into renewables.
    But capitalism has existed since ancient times, arguably wherever there has been trade. The seeds of its own destruction lying within I would argue are not those of socialism (vide Marx), but of a drift back to a form of feudalism.

  • Les Kovari says:

    Ian MacDougall, I am already past volunteering or being poor, I have never been rich but I was always comfortable. There will always be poor people because otherwise they could not claim victimhood.

  • Peter Smith says:

    What I am saying Ian is that saying a particular resource will run out if we keep on using it is a pointless discussion to have. Capitalism will always find ways, via discovery and invention, to overcome roadblocks well before they are in sight. We don’t have to hoard coal and oil away for a rainy day if we allow market prices to perform their magic. Of course, under socialism resources might run out; not under capitalism.

  • Tricone says:

    “capitalism has existed since ancient times, arguably wherever there has been trade.”

    True enough.
    Socialism tends towards levelling and scarcity. Then necessarily, the political elite get to pick who gets what, and a market of sorts , a “black” market, if only for favours and privileges and protection, inevitably exists.

    Free market capitalism means abundance and inequality.
    Diversity of outcomes. Nothing is perfect but everything is better. Including the environment.

    Oil, gas & coal , like all minerals on earth , including those necessary for “renewables” , are finite. But they are not necessarily exhaustible – that depends on the rate of use.

    As price goes up, in a free market, not only will the search redouble, but also genuine competitors are more likely to emerge.

    The rigging of the macro energy market in favour of unsuitable wind and solar (they have some efficient applications locally in isolated locations ) is actually having the effect of preventing the emergence of genuine energy competitors. But of course the “smart” money is after some of that subsidised loot. That’s human nature.

    As the Saudi wotisname says, “The Stone Age didn’t end because they ran out of stones”
    (a bit glib, because there are almost no large scale stone public buildings built these days , perhaps for that very reason)

    But stone tools were soon discarded when metal tools became available and were traded across continents.

    Just as whale oil began its precipitous fall from use when kerosene came on the go, long before any significant whaling bans.

    Just as the original industrial revolution – the Dutch and their windmills , sawmilling forests and building ships and cities faster and better than their rivals- was consigned to the dustbin of history by the rise of steam fuelled by coal.

    So far , except perhaps from nuclear, there has been nothing to come anywhere near the energy density and easy portability of hydrocarbons in the shape of oil, gas and coal.

    The world has barely scratched the surface in the search for more hydrocarbon reserves.

  • Tricone says:

    or to sum up more succinctly:
    “The best cure for low oil prices is low oil prices”
    the converse is also true
    “The best cure for high oil prices is high oil prices”

    That’s how markets work.

  • Ian MacDougall says:

    Tricone: “So far , except perhaps from nuclear, there has been nothing to come anywhere near the energy density and easy portability of hydrocarbons in the shape of oil, gas and coal. The world has barely scratched the surface in the search for more hydrocarbon reserves.”
    True enough. But as with many activities of us humans, the easy resources get mined first. eg the history of oil exploration in N America. But that is also why it is vital from the oil barons’ point of view that AGW be downplayed and dismissed asap from the public mind.
    Of course as well, those with the cash in future may be able to set themselves up in some nice little tropical paradise on Macquarie Island (world-heritage status removed of course), or in Alaska or Northern Canada. Maybe also Siberia if the Russians will co-operate.

  • irisr says:

    Saving hydrocarbons for future generations is a self-defeating exercise if it kills us in the process. Paradoxically, without us prospering in the present, there will be no future generations. So who are we saving it for?
    As for the other argument that using hydrocarbons is killing us by CO2 and heating up the globe in a dangerously urgent manner, it is manifestly nonsense. Any local warming has been entirely within normal parameters and empirically we can see local cooling as well so the law of averages still holds. If we stop using fossil fuels, we die of cold without heating or of heat without air-conditioning. As should be clear by now, no batteries and wind mills and solar panels will keep our industries going or indeed hospitals. Cooking food on dung-burning stoves will not give us better health or education, so please stop the hysteria!
    Future generations, if any, will find a way to survive, but we must survive to have them first!

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